Airlines spend a vast amount of capital in buying the airplanes, crewing and maintaining them. To earn a realistic rate of return on this investment, they must maximize the number of seat sold. Twenty and more years ago, this was reasonably straightforward. Air travel was the accepted way to move long distances, whether for business or pleasure. Only a small percentage of the population were prepared to drive long distances. Following 9/11, the need to maintain a high level of security has forced airports and airlines into major changes. Many of these changes have created difficulties and reduced the number of people prepared to fly. With rising gas prices, many people now stay home or drive only short distances for holidays. Recognizing the problem, the US has been holding a number of consultations with interested parties including Airlines for America, the trade association representing the airlines. The need is to promote travel and tourism without sacrificing safety and security.

As to international travel, the US market has already lost a significant volume of business from the countries that used to be able to visit on their own passports without a visa. Now advance notice of an intention to travel to the US must be given and, upon arrival, people are fingerprinted, retina scans are taken and, from their point of view, they are treated as little better than criminals or terrorists. No countries treat American citizens in this way. Tens of thousands of potential tourists are therefore voting with their feet and refusing the visit America. Why should this matter? In 2011, only 60 million people visited America. Nevertheless, they spent spent about $135 billion and paid for about 7 million jobs in the hotel, food and beverage, and retail markets. When you add in domestic travel, travel contributed about $1 trillion to spending. The US government has therefore committed itself to speed up the visa application process and to make the Visa Waiver Program more welcoming. In this, the US government has accepted the need for there to be equal treatment between countries. This means employing far more staff and upgrading the computer systems to allow passengers to be processed more quickly.

As to purely domestic travel, the government is reviewing the current security systems. In doing so, it is acknowledging that many now consider the procedures to get on a plane excessive. In particular, they consider some parts of the process highly intrusive. Again, this is all a question of balance, looking for a compromise that will respect a legitimate desire for privacy against the need to prevent terrorists from interfering with flights. With so great a contribution being made to national consumption, both state and federal authorities have to consider how best to bring more people back to air travel. This is not just a case of offering cheap air tickets. People have been driven away by some very poor PR and it will take a serious effort by all interested parties to restore trust and confidence. This does not deny that cheap air tickets will help. The low-cost, discount airlines have proved there is a real market for budget travel. But even there, problems arise with a lack of transparency on prices. Everyone needs to work together to boost air travel’s appeal.

For running an airline you need the fuel to put in the tanks. The supply of oil is normally steady and the price predictable. Unfortunately, instability among the oil producers means prices are volatile. In particular, the potential conflict with Syria has forced a price rise. Should Israel attack and Syria retaliate against tanker traffic, the world would quickly find itself short of fuel. The International Air Transport Association, the trade association representing airlines, has predicted its members will struggle to break even in 2012. Some of the European airlines are looking at record losses with two already insolvent: Spanair based in Barcelona and Malev based in Hungary.

The problem is that fuel represents about one third of operating costs. When you add in the cost of servicing the debt on buying the airplanes and paying the staff, there’s very little left. With many tickets sold forward, sudden rises in fuel prices may mean the planes flying at a loss when the passengers actually turn up.

All this means airlines are not going to survive unless two things happen. With no sign the international political situation is going to ease any time soon, there are two other factors likely to affect ticket prices. If passenger numbers fall, bankruptcy for more airlines will follow close behind. The only relatively bright prospect on the horizon is the strength of air cargo. It has been steady for the last two years even though the world markets have been trading well below their best. The second issue is the European move to impose a carbon tax on air travel. This is going to drive up ticket prices for anyone flying into or out of Europe, i.e. it’s payable simply because the airplane lands in Europe. With no sign of a global solution to the problem of how to protect the environment, this unilateral tax rise by Europe has angered the rest of the world.

The first is that peace returns to the oil producing parts of the world. The second is that outside costs like airport fees and carbon tax charges are kept to an absolute minimum. Anything that deters people from flying puts profits are risk. If the unions will not cooperate in reducing the rates of pay, ticket prices must rise. This further drives passengers away and the cycle into insolvency edges closer. The only way we get air tickets back is by seeing an expansion in the number of low-cost discount carriers, and a general return of confidence from customers. Without there being real demand for seats and losses looming, legacy airlines cannot afford to discount seat prices.

Is cutting air ticket prices real?

All that does is make the losses bigger. Lower prices can only come when historical costs are reduced. That’s why so many airlines are trying to cut pension obligations. These legacies from the boom years are a major drag on profits. So, your best hope for cheap air tickets is a victory for the airlines in their battles with unions and government regulators whose job it is to protect pension rights.