Why hasnt competition in the airline industry made services cheaper and seats more comfortable?

Mergers, acquisitions and Alliances of major airlines in USA and elsewhere in the world in the recent past has substantially reduced competition in certain markets. Airlines are, therefore, in a position to rationalize access capacity floated on these routes to improve average seat factor and reduce losses on account of perishable empty seats. Some airlines, however, may have gone a step further to increase prices at the same time squeezing economy seats more and more to accommodate more number of passengers.. This is the logical result of lack of competition. Anti Trust department may like to review the policy of allowing mergers, acquisitions, alliances and code share etc.

In the competitive markets, on the other hand, airlines are forced to operate around breakeven seat factor, which is around 80% on the average. The net profit, on sales, in such markets, is usually between 1%–2% on the average. Their rate of return is usually below Weighted Average Cost of Capital (WACC).

As per IATA research, Unit Cost of air transport, adjusted for inflation, has dropped by about 30% since 1970. IATA link below is a presentation and its slide # 14 depicts it in the form of a chart. you could also link it with slide # 15.


The price of air travel has in fact been reducing consistently since 1970s, when US airline industry was deregulated, followed by rest of the world. With the introduction of Revenue management system one can buy a ticket at almost half the price if booked well in advance. This was not the case when there was no competition and airlines were free to pass on the cost of inefficiencies to the passengers and also make desirable profits by fixing prices.