The formula for rising fares seems simple, but it eluded the airlines for years: Match the supply of seats to passenger demand.
"Airlines have reduced the number of seats while more people want to fly because of the economic recovery. All this leads to higher airfares," says Chuck Thackston, managing director of data and analytics at Airlines Reporting Corp. "This trend in airfares is likely to continue for the near future, as the economy continues to grow."
Most fliers are traveling for work. And when the economy is strong, they do more flying. Data released by the government last week shows that economic growth bounced back after a brutal winter, businesses are creating jobs at a steady pace and consumer spending is on the rise.
The airfare figures don't take into account the slew of fees travelers now face for checking bags, getting extra legroom, boarding early or purchasing a pair of headphones. Those fees now bring in $3.3 billion a year for U.S. airlines and have helped them return consistent annual profits for the last four years.
Baggage fees and some others were introduced in 2008 to offset losses from rising fuel prices. However, this year airlines are actually paying less for fuel — $2.96 a gallon so far, 7.2 percent less than last year, when adjusted for inflation.
Passengers aren't seeing any of those savings. One reason is that airlines no longer need to entice fliers with lower fares. There are simply fewer choices today.
A wave of consolidation that started in 2008 has left four U.S. airlines — American Airlines, Delta Air Lines, Southwest Airlines and United Airlines — controlling more than 80 percent of the domestic air-travel market. Discount airlines such as Allegiant Air and Spirit Airlines have grown at breakneck speed but still carry a tiny fraction of overall passengers.
That control of the market has enabled the bigger airlines to charge more for tickets and not worry about being undercut by the completion. Those higher fares, in turn, have led to record profits. In April, May and June, the four largest U.S. airlines earned a combined $2.9 billion. Airlines are earning so much money that they are starting to pay investors dividends — something unheard of in an industry that just a decade ago was struggling with a wave of bankruptcies.
Airlines for America, the industry's U.S. trade and lobbying group, says passengers should blame the government, not the carriers, for higher fares. Last month, increased fees linked to the Transportation Security Administration took effect. Fliers will now pay a flat fee of $5.60 each way, up from $2.50 each way for nonstop flights and $5 for trips with connections.
But taxes and government fees still remain a small portion of what passengers pay. On a $500 roundtrip ticket between New York and Seattle, they make up 12 percent of the price.
Scott Mayerowitz can be reached at http://twitter.com/GlobeTrotScott.