Why Airline Tickets Cost So Much (or Don’t)

Here’s how airlines figure out what to charge you for a flight (Hint: it’s complicated)

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Published June 21, 2019

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New York City is 371 driving miles from Pittsburgh. Los Angeles is 2,427 miles away. Yet flight prices to the Big Apple and the City of Angels rarely reflect those disparate distances.

With a week’s advance purchase, the cheapest round-trip flight to New York last week was $607 on the popular Kayak travel website. The most economical return flight to Los Angeles? $333.

Why would a one-hour flight cost nearly twice what a cross-continent trip costs? The main reasons, industry experts say, are demand and competition on a given route, which airlines dominate which airports, and timing. Counterintuitively, distance is a secondary factor when it comes to pricing air travel.

Airlines determine what to charge through elaborate calculations that go into “dynamic pricing,” a business strategy in which product prices continuously adjust – sometimes in a matter of minutes – in response to real-time supply and demand.

It’s a strategy that airline industry officials don’t want to discuss in detail.

“Pricing is a regulated topic and that restricts our ability to offer ‘real time’ (and certainly ‘future’) commentary on the topic,” one airline’s media office said in an e-mail.

The bottom line: “Airlines always want the maximum you are willing to pay,” said Bijan Vasigh, a professor of economics and finance at Embry-Riddle Aeronautical University in Daytona Beach, Fla.

Last-minute buyers pays more

One factor airlines incorporate into pricing is how much passengers need to make the trip, Vasigh said. Last-minute purchases, for example, almost always mean a traveler has little or no choice about whether to travel, he said.

One week out, New York fares from Pittsburgh could reflect heavy use of the route by business travelers who often travel last-minute and aren’t paying for the flight themselves, Vasigh said.

“They have no choice, or little choice, about whether to fly,” he said.

Leisure travelers, however, often check fares for weeks or even months in search of the best deal.

“If a flight is exorbitant – or even somewhat more than what they want to pay – leisure travelers will go somewhere else or delay the trip,” Vasigh said.

While buying a ticket last-minute usually costs more, prices of airplane seats are never constant.

“If a flight is not selling well, the airline can lower prices at the last minute. That’s not something to count on, though,” Vasigh said.

Is there a best time to buy a ticket? Not really, according to what Scott Keyes, founder of Scott’s Cheap Flights, has told CNBC.

Generally, the “golden window” to book the least expensive flights for a domestic destination is one to three months before departure. Travelers are likely to get the best international fares two to eight months out, he said.

Some airports are more competitive

Ticket prices often reflect which airlines have clout at certain airports. If, for example, one airline controls a large percentage of flights at an airport, it can show up in airfares.

Atlanta’s Hartsfield-Jackson International Airport is the nation’s busiest and home to Delta, which accounts for more than 60 percent of its flights.

“There’s less competition, more freedom for the airline to charge what it wants,” Vasigh said.

Airports like Orlando International and Pittsburgh International, for example, are not dominated by any single airline, Vasigh said.

“Pittsburgh is interesting – it’s not the hub of any airline, so none of (the airlines) have that much market power,” he said.

Flight distance does come into play in the cost of jet fuel, which can vary a lot. Now about $76 per barrel, jet fuel peaked at $148 per barrel in 2008. When it’s high, longer flights can see a bump in price.

What about the TMP?

Many air passengers incorrectly think airport development – such as the planned $1.1 billion Terminal Modernization Program at PIT — can boost fees and taxes on air tickets. It doesn’t, airport officials say.

The portion of the ticket fee travelers pay related to usage of airport facilities is set by federal law and has been $4.50 for nearly 20 years.

No local tax dollars will be used in building the new terminal, which will be paid for by the airlines through a use-and-lease agreement, parking, concessions and natural gas drilling revenue.

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