How New Fees Are Affecting the Producer Price Index for Air Travel
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Bureau of Labor Statistics
Since 2001, the airline industry has been affected by a number of external shocks, including terrorist attacks, volatile fuel prices, periods of challenging economic times, and an uncertain regulatory environment. In large part because of these factors, the industry has endured years of economic losses—$50 billion between 2001 and 2011—resulting in many bankruptcies and mergers. These losses have led airlines to focus on revenue-management strategies. One important way airlines have generated additional revenue is by adding surcharges and/or increasing ancillary fees for optional services or a la carte pricing. As an example, rather than airlines passing on higher fuel costs in the form of fare increases, fuel surcharges may be less noticeable. Passengers may be more likely to accept increases in fares if they know that fuel prices and fuel surcharges are rising in tandem. In addition, airlines have optimized capacity by eliminating and/or reducing the number of flights between some origins and destinations. These strategies have reduced the supply of available airline seats, giving airlines additional pricing power.
airline industry; fees; Producer Price Index; PPI; fuel prices