Let’s talk about airline pricing.

The other day I was about to hop on a flight on Alaska Airlines when the gate attendant announced that the airline had a new policy, which had only gone into place the previous week. They had downsized the allowable size of carry-on bags with wheels, which meant that a fair number of people had to unexpectedly check their baggage.

One of my first thoughts was that this was avoidable and that it was also the airline’s fault.

Having to switch to smaller carry-on sizes was a result in the boom in the number and size of carry-ons that was a result of the $25 fee for most first bags that so many airlines had started to charge.

Basically, the narrative went in my head, an airline figured out a way to charge more for something that should have been included in the base ticket, and once they did it everyone jumped on board.

It was just another in a long list of things that used to be included in plane tickets, but now cost extra: including full meals, unlimited alcohol, comfortable seats and actual legroom.

It makes it hard to look at pictures of Andy Griffith and company hitching a flight back in the 60s.

The way things are appears to be a tale of greed as old as time.

Or is it?

I was doing research, trying to figure out the reasons for my discontent, and I realized that the weird airline pricing and the ever-dwindling included features.

What I found is that there are natural economic factors present in capitalism that are creating this situation, and there’s not a whole lot the airlines can do to change it without putting themselves at risk of bankruptcy.

To understand this, we have to put the modern airline industry in context.

Prior to 1978, airlines were treated as a utility, regulated by the United States via the Civil Aeronautics Board, which “[set] fares, routes, and schedules.” If an airline wanted to fly, it had to get permission for the routes, the prices it could charge, and when those planes would depart and arrive.

The upside for the airlines was that they were guaranteed big profit margins by the federal government, just for showing up. The downside for the airlines was that . . . well, there really wasn’t one. They couldn’t do exactly what they wanted, when they wanted, for the price that they wanted, but what they were allowed to do led to immense profits.

The brunt of the downside was actually borne by the general public. There wasn’t really competition, as prices were set, so plane tickets were very, very expensive.

One of the articles I found claimed that “it was illegal for an airline to charge less than $1,442 in inflation-adjusted dollars for a flight between New York City and Los Angeles” and that the author found one on the day he wrote the article for $278.

Another reports that in 1941, a trip from Boston to Los Angeles would have cost $4,539.24 per person, and taken more than 15 hours, as well as having 12 stops on the way. Today, that number is $480.89, and you can get a nonstop flight lasting just 6 hours.1

That’s a big decrease in price, due in large part to the fact that the airline industry was deregulated in 1978. Ever since then, airlines have had to compete with each other.

This competition between airlines has driven a lot of the price decrease. But, we still feel like airline tickets are very expensive. There’s some evidence that they’re not. Take a look at this infographic:

Source: http://airlines.org/media/time-and-cost-comparison-of-popular-modes-of-transportation/

While this doesn’t factor in time spent traveling to and from the airport, as well as time spent in security and waiting on the plane, and money spent on things like parking, airport food, and baggage, it does make a good point.

Flying may be outright cheaper than other modes of transportation. But, the real upside is that it’s much, much faster. Close to an order of magnitude faster, if the above numbers hold up in real life.

So, again, why does the ticket feel so expensive?

We can blame greed a bit here. Airlines continually change their prices for seats on a flight, meaning that it’s hard to get a real idea of what a flight costs.

We know what a cheap, average, and luxury car should cost. We also know what a good deal on an apple would be, as well as an average deal, and what an expensive apple would cost.

But, the lack of consistency, and the fact that Americans, on average, only take 1.5 to 2 flights a year, mean that the average American doesn’t have a good sample size for pricing flights.

Another factor is the importance of third-party sites that show many flight options. Unless you’re trying to rack up miles with a single airline or traveling for business, you’re probably just looking for the cheapest flight, and there are a number of websites that will allow you to make a well-informed decision.

Consequently, airlines are incentivized to make their flights as cheap as possible so that they appear at the top of these lists.

That means that they’re going to strip out everything that they would otherwise have included that isn’t part of the bare minimum because whoever creates the cheapest price is going to sell the most tickets.

That means that they’re going to strip away things that probably ought to be included. If they don’t they’ll quickly find themselves near the bottom of the list, even if the experience is “better.” But, that’s not something that would be immediately obvious from looking at the list by itself.

That means that passengers are going to get hit with an assortment of extra fees and charges after buying the ticket, in order to get stuff that they would like to have believed would have been in the base ticket price. However, they probably wouldn’t have bought the ticket had it included those things, as it would have been far more expensive.

So, there you have it.

Airline tickets are way down from historical highs, but they also don’t have an easily-definable price and are torn down in order to appear cheaper, leading to nickel-and-diming after the fact.

Which feels bad, even if it doesn’t hurt your wallet as much as it might.

  1. Again, this number is inflation-adjusted.