Some US airfares increase as fuel prices decrease



Airfare increases by US airport

Airfares are determined by supply and demand dynamics, and they may also vary for different market segments and different classes of seats, such as first class, business class, or economy seats. In the global airline industry, premium class travel has been growing at a higher rate than the others, driven by a stronger demand for long-haul markets.

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High and low fares

According to the Bureau of Transportation (or BTS), the highest average fares in the US were paid by passengers arriving at the Cincinnati, Madison, Houston, Washington Dulles, and Jackson/Vicksburg. airports. As illustrated in the chart above, 2Q14 airfares in these airports ranged between $523 and $492, and the average fare in all airports was $396. The lowest average fares were paid at airports at Sanford Mesa, Atlantic City, Bellingham, and Long Beach. Airfares at these airports ranged between $111 and $250.

In 2Q14, the highest year-over-year increase in airfares were recorded in Atlantic City, Albuquerque, Atlanta, Jackson/Vicksburg, and Dayton. The airfare growth in these airports ranged between 9% and 15%, against the average airfare growth of just 2.5% in all US airports. Airfares in Memphis, Burlington, Hartford, Bellingham, and Savannah declined between 4% and 14%. In the last 14 years, average airfares in the US declined by 15.6% to $396 in 2Q14, from $469 in 2Q00.

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Fuel prices and airfares

Despite the decline in crude oil prices, airlines in US have continued to hike their airfares. According to data from FareCompare, Delta (DAL) and American (AAL) increased most airfares by up to $10 in selected routes. Plus, United (UAL) increased fares six times during the year. However, each airline’s fare hike was successful just once. JetBlue (JBLU) hiked fares just once in October, but failed to create an impact.

A fare hike initiated by one carrier is considered successful if all other airlines follow the first carrier in increasing their own fares. Otherwise, the initiator will have to withdraw or reverse the fare hike in order to avoid losing passengers to its competitors. Higher airfares increase airline profitability and returns from ETFs, such as the iShares Transportation Average ETF (IYT), that hold shares of airline companies.


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