Rising Prices? Airlines Need Cheap Flights As Much We Do

Your cheap flights to paradise are under threat, or are they?

One of the mega buzz topics in travel right now is whether cheap fares will disappear, as we see airlines continue to go under. Headlines keep splashing onto front pages around the globe, sounding the alarm that they will. In terms of supply and demand, it’s easy to make a case for “yes”, but it’s not that simple, and it’s much more likely that the answer is no.

Where’s everyone getting the idea from? Alexandre De Juniac, the head of the International Airline Transport Association (IATA) is a good start. This week, he famously proclaimed…

“If social distancing is imposed, cheap travel is over. Voila”

De Juniac runs the largest airline trade body, so it’s his job to sound the alarm of fear, in hopes of bolstering efforts to save airlines, jobs and ease restrictions. It’s a noble cause, and one I’m generally in line with, but don’t forget that Mr. De Juniac doesn’t care about cheap fares, or really, you either.

In fact, he’s argued to governments that airlines should be allowed to break the laws, and forgo refunds to passengers. He’s not wrong about social distancing being a problem though, and previous studies have shown little to no efficacy in combating spread, since everyone is still within 2m, and has been since entering the airport prior to flight.

But that’s not what matters, what matters is that either way, airlines can’t afford to get rid of cheap fares, they’ll just be different, and probably fewer of them offered on each flight, and the rest of the tickets will get more expensive.

Let’s assume airlines don’t block middle seats, and travel returns much like it was before.

First, it’s important to understand how airlines actually sell flights. The blanket answer is that you take the value of all the seats sold and divide by the number of seats. Airline sold $100,000 of tickets for 200 seats, for a total of $500 per seat. That’s not quite how it works.

Airlines sell some tickets at $5,000, some at $1,000 and some at $50. Most of the money is made on higher fares, so it’s often the lowest fares that are the icing on top. Last year it was fair to argue that booming corporate and business class travel was subsidizing cheap economy deals.

My friend Rob at Head For Points makes an excellent argument about how airlines can make the same amount of money per flight, with 1/3 fewer passengers, but he also fundamentally misread the “cheap travel” market, in my opinion.

The article is worth reading, but while saying cheap fares won’t go away, he specifically states the very lowest fares will. I fundamentally disagree, because airlines can’t afford to. He says rather than airlines selling 10 tickets at $10, and 10 at $20, etc, airlines will just start from a modestly higher number, like $30, so you’ll make similar figures while selling fewer seats.

The truth is, airlines can’t afford to get rid of their cheapest fares, because they’re more than just a price, they’re a marketing tool. These prices drive the incremental business airlines will desperately need, and the free coverage that comes with it.

Even if some low cost airlines go away, all won’t.

With travel demand nowhere near what it was, the airline game will be all about tempting those marginal “take it or leave it” customers on board their planes. Getting those butts in seats is vital to the revitalization. Plus, when deals are absurdly good, even major newspapers start writing about them. It gets the mass market interested again.

Those trips you want to take, but don’t need to take are the key example.

If an airline, which you know previously had $250 round trip transatlantic fares is advertising $500 fares, you’re not going unless you absolutely need to. If you absolutely need to, you’re paying $500 anyway. The same goes for short haul flights. If Ryanair charged $10 one way before, and that was attractive to you, you might give it a pass at $30 each way, if you don’t need to go.

That romantic idea of a long weekend in Paris is romantic when it’s cheap as chips, but not when it’s triple, or becomes a more significant conversation.

Being able to tempt you, the potential traveler seeking a flight to paradise, to at least come to the website and consider booking is everything, so I fully believe the lowest fares will remain. You won’t click that banner ad or think about flying if they aren’t shoving compellingly low fares in your face.

It’s important to remember that the key metric for at least 95% of travelers in choosing an airline is price, and price alone. It’ll force even the airlines which want to charge more into competing on low fares.

The problem is, there will be fewer of the low fares on each flight, and you might feel a benefit squeeze. You’ll need to be faster, better, smarter.

As mentioned, the airline really wants to make up the lower passenger numbers by charging you more, but it needs your butt in the door, or at least on their booking channel before it really can squeeze you.

As such, that $10 ticket may come even more stripped now than it was before, leaving opportunity for the most flexible travelers, but serving simply as intro price for those who realistically will end up paying more for seats, bags or even check in! Further, instead of selling 10, or even 20 seats at the lowest prices, airlines may only leave a handful of these low fares in play.

The passengers who pay closer attention to watching prices, via free price trackers, and really learn how to pack lightly and maximize allowed “free” luggage space will benefit more than ever.

To make up for fewer overall passengers and maintaining low fares, airlines will have to charge more for the rest of the cabin, and they likely will. There’s always people who “need” to get somewhere, and with these types of travelers, airlines have more ability to tinker with fare raises, even though it rarely feels fair when you’re one of those people.

Assuming airlines and governments around the globe find more creative or effective ways to stop the spread of any health issue, and middle seats aren’t blocked, the low fares we were enjoying aren’t going anywhere. As long as airlines built on low fares exist, all the other airlines built othwerwise will have to play along.

The lowest prices for your dream getaway will still be there, you’ll just need to be quicker on the draw.