Airline passengers won’t see deals - where is that money going?
June 11, 2012, 01:35 pm
Airlines' profitability is rising and fuel prices are decreasing. The economy for the remainder of 2012 might be unknown, but for the airline industry, things are looking up. So, what difference does that make for the consumer?
The answer: not much. Considering airlines run on tight profit margins, about 3 percent, passengers may not see cheaper prices for flights. The best-case scenario, it would seem, is airliners might invest more money in customer service, but they are looking to raise prices, rather than lower them.
National Public Radio reports airlines have increased prices nearly 10 times in the last year, and nonstop flights are becoming more expensive. So where is all that money going?
US Airways recently created a hypothetical flight of 100 passengers who paid the average of $146 for a flight and $18 each in fees. The study concluded that when it comes to that tight profit margin, there really is no room for lower prices. Passengers could be paying for the repairs on a baggage cart, or even covering crash insurance or compensation for someone else’s lost bag.
"It's like a wristwatch,” said former airline chief executive Gordon Bethune. “You only see the face and hands, but all the parts inside are really necessary. Those bags don't get downstairs by themselves. All those things that move bags have to be purchased and then they break. It never stops."
Although the cost of fuel might be decreasing, it is still the largest concern when an airline considers spending. On a hypothetical flight, of the 100 passengers on board, 29 people cover the fuel cost alone, just for that trip.
The next expense in line was the ownership cost associated with airplanes, through buying and leasing. It takes 16 more people on the 100-passenger flight to cover those costs. Next, it takes 14 passengers to support the collective federal taxes, 11 more for security fees that support the Transportation Security Administration, another 11 to cover the total maintenance costs of running an airport and finally nine more passengers to cover various costs, including complimentary drinks and replacing lost luggage.
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