Five years ago, Scott Keyes booked a $130 flight from New York City to Milan. When he gushed to his friends and coworkers about his great find, they told him they wanted updates every time he found such incredibly cheap flights.
And so a newsletter was born. Keyes started hunting for all the best deals and sending them in a mass email to anyone who was interested. Two years later, with 5,000 subscribers, Keyes decided to launch Scott’s Cheap Flights, a platform that helps travelers find low international fares.
But while cheap international flights are becoming easier to find, the opposite is true with domestic fares, and the reason has everything to do with competition in the airline industry.
New international carriers like Air Asia, Fastjet, Norwegian Airlines, Ryanair, Westjet and WOW Air are shaking up the global air travel market, driving down prices and improving service quality.
But consolidation within the U.S. domestic airline industry is driving up prices for flights to non-hub cities, and many economists believe price fixing and collusion between airlines is keeping domestic air fares static despite declining fuel and maintenance costs.
According to Keyes, global air travel has never been so accessible.
“This is the golden age of cheap flights,” he told InsideSources. “It has never been cheaper to travel internationally than it is today. Five years ago you’d almost never see flights to Europe under $500. Now you regularly see them in the 300s, sometimes less.”
The cost of a flight involves many components, but the two big ones are the cost of fuel (directly related to oil prices) and the state of competition with other airlines.
Keyes said part of the reason for the drop in international air fare is because of fuel prices, which have declined over the last several years. “International travel, because you’re going farther, is much more dependent on price of fuel,” he said. “With the exception of the past few months or so, the price of oil has been quite low by historical standards.”
From Keyes’ perspective, increased competition from international budget airlines like WOW Air and Norwegian Airlines have also caused prices to drop. Cheap flights with legacy airlines with an international presence — like Delta, British Airways and Cathay Pacific — are now easier to find due to the entry of new budget airlines to the market.
“The legacy airlines have started to compete on price and I don’t think the international market has stabilized yet,” Keyes said.
The U.S. domestic market, however, is a different story.
John Kwoka, distinguished professor of economics at Northeastern University, told InsideSources he believes the series of mergers between U.S. airlines over the past 20 years have produced anticompetitive effects for consumers.
Besides price increases, the mergers have also made it more difficult for new carriers to enter the market, Kwoka said.
“There’s no doubt there have been some efficiencies through the mergers, but I think those were weighed in a way to allow the mergers to proceed,” he said. “In order the isolate the effect of the merger you need to control fuel costs. It’s true fuel costs have declined substantially, and prices have sagged a bit, but it’s masking the effect of the merger. When fuel costs fall by 30 percent, air fares don’t fall by 30 percent.”
While it isn’t impossible for new airlines to enter the market — Allegiant, Frontier, JetBlue and Spirit are proof of that — those new airlines, all of which typically charge lower prices for air fare, have struggled mightily to grow their presence in the U.S. market.
“JetBlue and Frontier and Allegiant are increasingly marginal players in what is now a game between the big four (American Airlines, Delta, Southwest and United),” Kwoka said. “There are hubs that are notoriously difficult to get into and establish service.”
As a result, the budget airlines only fly to select cities, making some parts of the country very expensive to reach by plane.
The rise of the hub strategy — in which a major airline selects heavily traveled cities as bases for operations — means flights to hub cities are cheap while flights to non-hub cities are more expensive. The reason is basic economics: it is more expensive for an airline to fly to a less-traveled city because every unfilled seat on an airplane is a loss for the airline.
Not only that, but Tufts University Associate Professor of Economics Silke Forbes said investors with large stakes in several of the “Big Four” don’t want too much competition between the airlines, because if prices fall too much, the investors lose money.
“There have been a few studies done on airlines owned by the same investors, and there’s a worry that if a company like Vanguard owns stock in United and Delta, then Vanguard doesn’t want United and Delta to compete very heavily against each other, because then investors don’t get higher returns,” Forbes told InsideSources. “Prices are higher on routes where these airlines are the two competitors invested in by investors.”
Forbes said there are other studies saying this is a difficult conclusion to draw because you have to “infer from the data.”
But Kwoka believes flights would be cheaper overall if the U.S. domestic market were more competitive, and he thinks there’s a legitimate antitrust case to be brought against the “Big Four.”
But until that happens, there are a few ways to try and get the cheapest flights. For international and domestic flights, Keyes said to start by searching by price first instead of by certain dates or airlines.
“The way most people tend to look for cheap flights goes something along this process: step 1, decide where you want to go, step 2 decide when you want to go, and then step 3 what’s the price for that flight? But by setting price as the third priority, you tend to not get a very good deal,” he said. “Rather deciding when you want to go or even where you want to go, put price first.”
When you have to travel on specific dates — like getting home for Christmas or getting to and from Fort Lauderdale for Spring Break before the classes start again — it’s best to book sooner rather than later. Airlines have figured out that people who wait until the last minute to book a flight usually aren’t very price-conscious, which is why air fares two weeks from departure are so much more expensive than air fares four weeks from departure.
Furthermore, if you book sooner rather than later, that allows you more flexibility with the dates, and it’s easier for you to find the cheapest possible flight.
“The biggest thing is flexibility,” Keyes said.
