January 17, 2014

Growth of discounters held airfares down in past decade, report says

PwC report says fares have risen only 2 percent in past 10 years, but an Associated Press analysis shows the average domestic round-trip ticket is up 12 percent since 2009.

Consumer airfares have barely budged in the past 10 years even as the industry has consolidated with several large mergers, according to a new report by PwC US.

But fares have moved up since 2009, according to a separate analysis by The Associated Press.

The consulting group, formerly known as PriceWaterhouseCoopers, found that airfares have risen only 2 percent in the last decade and actually declined by 0.5 percent, when accounting for inflation.

“If you look back over the last 10 years, you really don’t see a significant overall increase in domestic fares as a result of these mega-mergers,” said Jonathan Kletzel, PwC US Transportation and Logistics practice leader and author of the report.

Although the Delta-Northwest, United-Continental, Southwest-AirTran and most recently American-US Airways mergers have reduced the number of airlines serving domestic airports, consumers have benefited because the airlines have improved operations and customer experience, the report says.

Passengers experienced 26 percent fewer flight cancellations, and late arrivals are down 17 percent in the last five years, the report says. Airlines also lost fewer bags, lowering the number of mishandled bags reported by 31 percent to 3.2 incidents per 1,000 passengers, it says.

“Because of the bag fees, you have more people carrying on bags. That, plus the reduced number of flights, means there are fewer bags being checked and a better chance your bag won’t get lost,” Kletzel said.

Low-cost carriers have also expanded into most major domestic markets with passenger traffic up 15 percent since 2008. Carriers like Southwest Airlines and Spirit Airlines control 30 percent of the domestic market.

“The markets [low-cost carriers] serve, in many cases, they are underserved markets,” Kletzel said.

However, another analysis conducted by The Associated Press showed that the average domestic round-trip ticket, including tax, was $363.42 last year, a 12 percent increase since 2009 when adjusted for inflation.

“Even with the presence of a number of strong, sizable low-fare airlines, you are still seeing airfares go up sizably,” said Henry Harteveldt, a travel industry analyst with Hudson Crossing.

Starting July 1, fliers will face higher taxes. The government’s security fee is $2.50 each way for a nonstop flight, capped at $5 each way if a traveler has a connection. That fee will be $5.60 each way whether or not there’s a connection. The fee hike is estimated to cost travelers an extra $1 billion a year.

This report includes material from The Associated Press.

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