Airline fares

Hello dear reader,

Today I spent a lot of money. I wish it could have been for shopping, a new purse or trench coat would be quite welcome. No, unfortunetaly, I purchased some little piece of papers that gives me the right to fly. It seems to me that I spent an awful lot of money. I find that for the past months, prices have exploded, but maybe I'm biased. So I decided to investigate a bit to understand why airline tickets cost the money they do and if we pay for what we get.

It is important to know, as a matter of fact, that airline companies, since 2001, are losing an awful lot of money. In fact I don't understand why they haven't gone to bankrupcy yet. This gives me a little bit the feeling than I am shooting on a crippled, but anyway. On the following graph, taken from a very interesting paper that I found online from Dipasis Bhadra and Brendan Hogan [1], you can see that for the last years, the airline industry in the US loses between 1 and 2 % of the GPD per year on average. This is huge:

The consequence of that is that since 2001, the US airline industry is heavily subsidised by the governement.
What is more interesting for the question of tickets fares, the period between 2000 and now, have seen a explosion of low-fare companies. This increase has happened, with no increase of the global activity: the increase of low-fare companies have shrunk the activity of the 'big 6' (the six main american airlines.[1]
A second article is raised my attention. [2] It shows how a big Canadian company (that I won't name here) advertised major discounts but in reality didn't reduce very significantly its price. This company is in a favorable situation: a part of the market is made on international and long distance journeys, on with there is a significant competition. But the major part of its activity is done on markets where it holds a monopole. On monopole spots, the company doesn't really need to apply major discounts. So it advertise a campaign of offers (pretty much all year round) and in fact only gives a few tickets with those special fares. The rest is still sold at high price. On markets with a significant competion of low-fare companies, then it is different. Tickets have to be sold cheap. In the end of the day, travellers of monopole spots pay for the others.
I want to add that, in my view, segments where traditional companies compete can probably be considered as monopole ones. I believe that cartels could easily exist there. It is in fact the interest of those companies which have to suffer from the action of low fare ones on high yields segments.
Well, dear reader, I hope you enjoyed this little story. I hope to have time soon for a new story.

Sources:
[1]http://www.mitre.org/work/tech_papers/tech_papers_06/05_1155/05_1155.pdf, Dipasis Bhadra and Brendan Hogan, American Institute of Aeronautics and Astronautics, 5th ATIO/AIAA

[2]http://www.piac.ca/transport/the_airline_ticket_pricing_game/