Why You Should Pay Frontier’s Carry-On Bag Fee

Why You Should Pay Frontier’s Carry-On Bag Fee

"Measured in 2013 dollars, airfares with fees were 31 cents per mile in 1979, and 16 cents last year."

And that has happened despite the fact that the price of jet fuel (again in 2013 dollars) has gone from an average of $1.86 in 1979 to more than $3.00 in 2013.

So with costs nearly doubling and fares halving, how do the airlines make money? Answer: they didn't until about 2006, when they decided it was about time to run their operations like real businesses. "But," you think, "aren't they just being greedy corporate dickheads by eliminating all amenities, crowding passengers closer together, and adding fees?" No. Perhaps such a claim could apply to many corporations in many industries, but such is not the case in the airline biz. The fact that the airlines are trying to cut everything non-essential and squeeze everything they can from every possible revenue stream might make for some good late night monologues and anti-capitalist rants, but they are simply in the process of turning their losing business model into a winning one.

From the article: "Since deregulation, the domestic airline industry has lost more money than it has made. In fact, it lost more money from 2001 through 2006 than its cumulative inflation-adjusted profits since 1947. For decades, airlines have served as vehicles to transfer wealth from investors to employees and customers." As Warren Buffet has noted, the airline industry has incurred a sizable cumulative net loss since the airplane was invented! Buffett once joked that investors would have been better served if someone had shot the Wright brothers down. (He may have been right about those investors who placed their bets on commercial aviation carriers, but I guess Buffett wasn't considering the profits from building aircraft for both commercial and military use.)

Even back in the day when I used to study such matters (the early 1980s), I could never understand the business model of the commercial air carriers, and things got even worse for them from time to time after that (1990-94, and then again in 2001-2005). I wrote above that the air carriers were "struggling to survive." That's not entirely accurate. They were actually not surviving. I have not been at all surprised to see them march one-by-one into bankruptcy court.

(Note: After massive losses from 2001-2005, the airlines have turned some solid profits, especially since 2009. Path righted. For now.)