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US flight prices are over $200 cheaper than they were 30 years ago when adjusting for inflation. Here's why it doesn't feel like it.

upset airline traveler
Americans aren't happy with flight prices, but they're much more affordable than they used to be.
  • Adjusting for inflation, airfares are much more affordable than they were nearly 30 years ago. 
  • But plenty of Americans remain frustrated by flight prices. 
  • BI asked experts why inflation-adjusted airfares have fallen and why some people haven't noticed. 

The last time you bought a plane ticket, you probably got a better deal than you realized. That's because, believe it or not, airfares are much more affordable than they were three decades ago.

In 1995, the average US domestic airfare was $292 — excluding optional fees, like ones related to baggage — according to the Bureau of Transportation Statistics. In 2023, the average fare was $382, up over 30% from 1995. However, the story changes dramatically when adjusting for inflation. In 2023 dollars, the average airfare fell from $584 to $382 between 1995 and 2023, a nearly 35% decline.

It means that flying, like the prices of televisions and toys, is much more affordable than it used to be. But if you ask some Americans, airfares have gotten out of control in recent years.

"There's little doubt in my mind that people think airfare is at historic highs and getting more expensive," Scott Keyes, an airline industry expert and the founder of travel-membership service Going.com, told Business Insider via email. "We are living in the golden age of cheap flights, but few people recognize it."

Additionally, Mike Daher, a transportation expert at Deloitte, said in a report published in May that there's "a perception that airfares and room rates are high, and some Americans are sitting out travel this summer as they look for softer pricing."

It's not just domestic flights that have gotten more affordable. Keyes said international inflation-adjusted airfares for US passengers have also generally fallen over the past decade.

Frustrations over flying costs could be among the reasons the share of Americans with a negative opinion of the airline industry is at the highest level since 2011, according to a Gallup survey of over 1,000 US adults conducted last August. The federal government seems to have taken notice. In January, a federal judge blocked the JetBlue-Spirit Airlines merger after the Biden Administration raised concerns about the impact it would have on flight prices. In April, the Department of Transportation announced a rule it said would protect consumers from "surprise junk fees" — such as the costs of additional baggage and reservation changes — and save fliers over $500 million a year.

To be sure, any frustrations about airfare prices haven't stopped many Americans from flying. When pandemic restrictions eased, Americans unleashed their pent-up travel demand on the airline industry. And that momentum has continued: on May 24, TSA officers screened nearly three million passengers, a record figure.

Still, the overall decline in actual airfare prices over the last two years suggests passenger demand "seems to have subsided" a bit, Kerry Tan, a professor of economics at Loyola University Maryland, told BI via email. He said this suggests demand could be normalizing and that some Americans balked at 2022's uptick in flight prices — even though tickets remained more affordable than pre-pandemic levels when adjusted for inflation.

Going forward, airlines will continue to be impacted by Americans' perception of flight prices. To the extent this perception influences Americans' broader feelings about inflation and the economy, it could play a role in the presidential election this fall.

Business Insider spoke with airline industry experts to learn why inflation-adjusted airfares have fallen over the past two decades — and why some Americans don't seem to have noticed.

Why flights have become more affordable

Airline industry experts told BI that one of the biggest factors driving down inflation-adjusted airfares is the rise of lower-cost, budget airlines.

In 2000, United, American, and Delta flights accounted for 73% of US domestic passengers, according to an analysis of Department of Transportation data by the trade association Airlines for America. By 2023, their share of passengers had fallen to 52% as lower-cost airlines like Southwest, JetBlue, Spirit, and Frontier emerged.

This development led to cheaper airfares through what airline insiders call the "Southwest Effect."

"When researchers have studied airfare, they've found that when a low-cost carrier like Southwest or Spirit begins flying a new route, fares fall an average of 20% on all airlines operating that route," Keyes said. "That's because price is by far the most important factor for leisure travelers' purchase decision, and so competition from new airlines — especially low-cost carriers — drives down fares across the board."

Keyes said another factor that has pushed down fares is "more and larger airplanes."

In addition to having more planes in their fleets than they used to, airlines have retired smaller planes in recent decades and replaced them with larger aircraft. In 2005, 11% of commercial airplanes had at least 151 seats — compared to 48% as of 2023.

"Larger planes, better fuel efficiency, and more seats are lowering the overall flight costs for airlines, and those savings are being passed onto travelers," Keyes said.

Despite the competition of cheaper airlines — and the lower inflation-adjusted fares they helped bring about — airlines like United, American, and Delta haven't suffered for it financially.

"The decline in inflation-adjusted airfares appears to be uncorrelated with the financial performance of the 'big three' airlines," Tan said.

Keyes said the years between 2015 and 2019 were "among the most profitable ever" for US airlines. He said declining inflation-adjusted fares haven't hindered airline profits because their business models aren't as reliant on ticket revenue as they used to be.

"Today, airline revenue comes primarily from sources other than economy tickets," he said. "This includes premium cabin revenue, credit cards, business travel, ancillary fees, cargo, and other sources."

Why Americans don't feel like they're getting a deal on airfares

If airfare prices are more affordable than they used to be, there could be several explanations why Americans remain frustrated.

"Consumers may not always think about inflation-adjusted airfares, so their frustration could be due to the higher nominal level of prices," Tan said. "It could also be that travelers are more frustrated by their travel experience as there's been a slight increase in flight delays since the COVID-19 pandemic."

It's also possible that after airfare prices plummeted due to the pandemic, 2022's swift rise in airfares caught Americans off guard. In September 2022, airfares rose roughly 43% compared to the prior year, the highest rate on record.

Additionally, airfare isn't the only cost of flying — many passengers pay fees for things like extra baggage and seat assignments. These fees can be tacked on well into the booking process, something the Biden Administration is trying to crack down on. Fourty-four percent of Americans said they at least sometimes pay more for airfares than the initial price they were shown, according to a YouGov survey conducted last July. This year, United, American, and Delta have each raised their checked bag fees.

But while these fees may be costly to some customers, Keyes said they haven't done much to offset the decline in inflation-adjusted airfares. The Airlines for America analysis found that including fees for baggage and reservation changes, the average US roundtrip ticket was $406 in 2023. Since 2010, only 2020 and 2021 offered more affordable flights — much of which was due to the decline in demand tied to the pandemic.

It's also possible the rising prices of goods and services across the US economy have left Americans with less money to spend on airfares, which is what's making their plane tickets feel particularly expensive. Some people have stuck with their pandemic habit of booking flights only a few weeks in advance due to uncertainty surrounding their travel plans, Hayley Berg, Hopper's lead economist, told NerdWallet. She recommended booking at least one month in advance to get lower airfares.

For some Americans, plane tickets are among the most expensive purchases they make on a semi-regular basis, something that could make people particularly sensitive to price increases. For others, flying is something they rarely do — which could make them less likely to notice a decadeslong shift in inflation-adjuted prices.

Lastly, the unpredictable nature of airfare price swings could be frustrating for consumers, Keyes said. And when it comes to economic issues like travel costs, it's not uncommon for Americans to have negative feelings that don't jive with the data.

"Airfare is the single most confusing and volatile purchase we regularly make," he said. "Combine that with negativity bias and it's no surprise that even as airfare hits historic lows, people are more likely to think it's at historic highs."

Have you found a creative way to save money on travel or flights? Are you willing to share your story? If so, reach out to this reporter at jzinkula@businessinsider.com.

Read the original article on Business Insider

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