Cover image via sienteamerica.comChances are, that flight ticket was the most expensive part of your overseas holiday. Price wars and flash sales have been great respite, but globally, the price of flying is increasing.
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There are many factors that determine the price of a flight ticket, including:
Competition has typically been good news for consumers as airlines enter price wars to offer the most competitive prices. In the US and Europe, airlines are consolidating, which means less competition and more pricing power.
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If you drill into the breakdown of an airfare, you would notice a long list of taxes and surcharges that are being transferred to customers. In fact, these extra charges are sometimes even higher than the base fee.
American airlines have a long list of government tax that are imposed:
– September 11th Security Fee of $2.50 (up to a maximum of $10 per round trip)
– Passenger Facility Charge of $4.50 per segment (up to a maximum of $18 per round trip)
– US Federal Domestic Segment Fee of $3.70 per segment
– US Travel Facilities Tax of $8.20 per direction (only applicable to flights to/from Alaska and Hawaii and the 48 contiguous US states or between Alaska and Hawaii)
– US Immigration User Fee of $7
– US Customs User Fee of $5.50
– US APHIS User Fee of $5
– US International Transportation Tax of $16.30 per arrival or departure
– Foreign government security/tourism/airport/international transportation taxes and fees of up to $290 (varies widely by destination and fluctuates with exchange rates)
Governments charge a fee for entering and exiting the country while airports impose security and passenger services fees, all of which drive up the airfare
And then there is the fuel surcharge. Jet fuel is the highest operating expense for the airline industry, and it is transferred to the passengers via an additional surcharge.
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Many have questioned why fuel surcharges remain pricey despite a drop in global oil prices. Besides flight distance, the fuel surcharge is influenced by market conditions, competition, currency strength and even bilateral agreements between countries.
But that is not the main reason why the price of air tickets fluctuates. Airlines are actually strategising ticket pricing to appeal to both big-money businessmen and time-flexible holidaymakers to sell all the seats on a flight.
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Low-cost carriers cannot avoid transferring third-party fees to the consumers, but they have been able to keep prices low by reducing frills, ensuring high aircraft utilisation, streamlining operations, and using secondary airports
AirAsia can consistently deliver low fares as the business model keeps costs low and efficiency high.
For starters, an airline makes money when the aircraft is flying, not when the aircraft is parked. AirAsia's aircraft is kept flying as much as possible with a 25-minute turnaround time compared to a full-service carrier with a one-hour turnaround time. They focus on getting passengers from point A to point B, eliminating frills such as free food and refreshment to keep the base fare as low as possible. By consistently using a single type of aircraft and standard operating procedures, the cost of retraining pilots, flight attendants, engineers and mechanics is also eliminated.
Besides that, low-cost carriers fly to and from secondary airports, such as klia2 as opposed to KLIA, as operation costs are much lower than major airports. A point-to-point network and lean distribution reduce dependency on travel agents and other airlines for connecting flights, all of which are cost-cutting.
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