Airlines in U.S. Reduce Fare as Capacity Increases

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Last month many American airlines were reported to have reduced their fare price. The price change was the largest reduction ever in nearly the past 20 years. This was done in line with the increased capacity in the air travel sector that had automatically been caused by lack of enough travelers to pump the expected revenue to the airline companies.

Last month it was discovered that the airlines’ fare had gone down. The measure of the fare in the month of July indicated that it had reduced from the month of June by 5.6%. According to the Labor Department’s consumer price index report, the reduction percentage is the largest monthly decline since December 1995. According to Seth Kaplan, managing partner with the industry publication Airline Weekly, whenever there’s a fast growth in the airline sector, fare will always reduce. “Fares fall when airlines grow more quickly than the economy,” he said. Kaplan added that airfares are dictated by the Supply-and-demand economics.

After the discovery of the fare drop last month, Justice Department launched an investigation to find out if there was any unlawful act airlines committed to keep capacity expansion and keep ticket prices high. Logan Purk, an analyst from Edward Jones, disapproved the investigation saying airlines did not do any unlawful act since the strategy used is legal and is being used in other business sectors. “I don’t know how you can prove airlines are colluding,” Purk said. “Showing capacity discipline to maintain pricing power is what every industry does.” He added.

With big airline companies like United Continental, Delta, and others reducing the fare prices, the low income travelers can have the joy of flying to their planned destinations without scratching their heads with the worry of their budget.

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