Airline executives and analysts point to a variety of sources for the demand. Some of the primary factors:
Cheaper Flights
Average domestic airfares have declined more than 15% since early 2015 when adjusted for inflation, to $353 per round trip in the first quarter this year, according to government data. Airlines are capitalizing on sophisticated revenue management systems which predict demand with more far more accuracy than in the past. Seats that once flew empty are now more likely to be priced for sale, and filled.
Budget Airlines
The overall supply of budget fares has grown. Spirit Airlines Inc. and Allegiant Travel Co. have expanded dramatically in the past decade, with the most growth at ultra low-cost airlines. The Big Three legacy carriers have responded with “basic economy” fares as part of a broader shift to segment airplane cabins into more zones based on price and amenities. “That has been a pretty big shift in our business and we’re encouraging a new set of travelers to fly,” said Andrew Nocella, United’s chief commercial officer.
Experiences vs Things
The millennial tendency to value experiences over material goods is fueling some of the demand for air travel, Bastian and others said. Older people have bucket lists; younger ones see traveling with friends as more important than buying some expensive possession. Today’s travelers want to “get that Instagram shot on top of Kilimanjaro or wherever and airlines are absolutely going to help you accomplish that,” Baker said.
Loyalty Scheme Changes
Airlines have seeded some of this demand by making major changes to loyalty programs. The carriers are focused on turning frequent-flier miles into a transactional “currency” for members to spend for things beyond award trips, such as upgrades, bag fees, cocktails in airport lounges and TSA PreCheck enrollment costs. The airlines have also begun to dynamically price award trips, raising and lowering the number of miles needed based on demand. With miles gaining “better utility” travelers have become eager to collect more of them from travel and credit card spending, Nocella said.
This article was provided by Bloomberg News.