Travel Rewards Credit Cards

Jan 30

It’s Official: Prices Are Going Up

After two years of declining ticket prices in the airline industry, things are looking up for them in 2017, as most are predicting positive unit revenues, or RASM*, trends.

Prices Are Heading up

RASM

American was the first to go positive

True, you may not have noticed it if you didn’t live in a competitive market but, over the last two years, ticket prices have actually declined. It may seem that prices go up every year and, for the most part, that’s true. Two years of declining prices is very unusual. But American tipped positive in the fourth quarter of 2016, and most airlines should follow sometime in 2017.

The airlines have benefited from a few different trends. First, capacity growth has slowed. In an industry where supply-demand dynamics are so crucial to pricing, even a percentage point of seat growth has a big impact. Second, the legacy carriers are getting smarter about matching the ultra-low cost carriers (ULCC). Previously, the only weapon that the majors had was to outright match the prices from ULCCs. The introduction of basic economy, though, means that they will be able to segment fares better, charging just a little bit more to some passengers by way of fees.

And finally, there are all the extras. If one were to look at total RASM, including all the extra fees, credit card dollars, etc., one would see that the “other” column, or revenue that that doesn’t come from a ticket, goes up every year. When was the last time that the airlines reduced prices for extras?

Regardless of where the money comes from, the average consumer will pay just a bit more to fly this year. But look on the bright side: The extra cash will earn you more credit card points.

 


*RASM stands for revenue per available seat mile. It measures how much revenue an airline generates to fly one seat one mile, regardless of whether there is a butt in it or not. RASM is a fancy airline word. The airlines know words. They have the best words.

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