After a couple of years of declining ticket prices, it looks like higher fares are here to stay, at least for the short term.*
American Airlines Raises Investor Guidance
This morning, American Airlines announced that it expected its second calendar quarter RASM to increase 3.5%-5.5%. What is RASM? It’s a measurement of how much money an airline generates to fly one seat one mile, regardless of whether the seat is occupied or empty. It combines load factor (the percentage of seats with butts in them) and the average price that those people paid. For example, in the month of April, load factors were up 1.8%. The rest of the increase for the month came from ticket prices, or “yield.”
Prices are affected by numerous factors, ranging from local competition to the shift of holidays between months but, overall, are a good indicator of economic strength. Things are good? Then planes will fill up faster and airlines will raise prices faster. Think of it this way, if a plane holds 20 seats and there are 19 people who need to be on that plane, prices will drift lower, since each passenger can only occupy one seat. But increase demand from 19 to 21 and you’ll see the prices increase, and increase quickly. Somebody’s not getting on that plane, so the 20 who want to be on it will be willing to pay to do so.
Obviously, nobody has perfect data on what the demand will be for any flight, but the advantage will go to the airline, which spends millions of dollars every year managing revenue.
*Didn’t see your ticket prices decline? You’re not alone. When I reference average ticket prices, I am talking about the company’s entire network. That means that a fare war in a couple of cities could more than offset price increases elsewhere. Some cities saw certain fares decline as much as 75%, as low-cost competition invaded their markets.
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