Oliver explains: Why are some plane tickets so expensive?
It is not just about cost & revenue management
I recently got an e-mail from an old university friend asking for tips about the best time to buy airline tickets. Kathryn wants to take her family on holiday to Europe in the school holidays.
Says Kathryn:
I’m looking at the costs and thinking, SURELY not. These are ridiculous. Makes it so expensive for families. Especially in this economic climate. Anyway - perhaps I’ve given you a content theme for your next piece of editorial!
Yes you have Kathryn! Today I am going to be asking why some plane tickets are so expensive. Indeed, sometimes extortionately so.
This is the sixth article in my “Oliver explains” series. I take things that are either important tools in RM’s tool kit, sound a bit odd or seem complicated. Hopefully I will be able to make them sound simple.
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You can read the other five here:
1. Why is Business Class sometimes cheaper than Economy?
2. How do airline overbooking algorithms work?
3. How is airline revenue accounting data used in revenue management?
Some of you might find these ideas elementary. We all had to start somewhere. In that case don’t worry, other articles will be coming soon.
Some examples of expensive flights
This year my old school breaks up for the Trinity Term exeat on Fri-22-May and returns on Sun-31-May.
British Airways currently wants an eye-watering £4,170.20 ($5,555.78) for four seats on sensibly-timed Euro Traveller (Economy) flights. Club is £7,018.20.
The flying time is a mere 130 minutes outbound and 140 minutes inbound. This is five months ahead of travel and includes a bag.
An employer of a higher rate taxpayer would have to pay £9,698.14 including all income and employment taxes for somebody to afford those Economy flights. Even for a person on £100k a year they are expensive.
That is just for flights. No hotels. No other experiences.
No wonder Kathryn is shocked.
But things can get even more pricey. Readers of a thrifty and nervous disposition should turn away now…
I wrote this article last week. On the day of writing a next-day one-night return to New York on BA in Economy Class without a bag costs £2,518.42 ($3,355.18).
Paying a higher rate taxpayer that much would cost an employer £5,856.80.
The median household disposable income in the United Kingdom is £36,700 in 2025, according to the Office for National Statistics.
The same trip in higher cabins costs at least:
£2,794.42 in World Traveller Plus (Premium)
£10,054.42 in Club World with it’s famously-flat beds
£12,756.42 in First.
The First class fare is more than four month’s disposable income for the average British household.
So why are flights sometimes so expensive? There are three obvious answers and four others that are more nuanced. Now read on…
The “obvious” answer – flying is expensive
Sending metal tubes full of hundreds of people hurtling through the atmosphere and landing them safely thousands of miles away is, understandably, expensive.
The list price of the Airbus A350 which flew me to Hong Kong and back last month is more than $350 million before it even carries one fare-paying passenger. And that does not include the engines or even the seats.
Airlines do not actually pay the list price. Discounts may be substantial. But one of these super-fast and super-connected flying machines will still cost in the hundreds of millions just to buy. Operating is extra.
In addition to the planes, airlines need to pay for maintenance, headquarters, sales, computers, insurance, overflying and many other costs.
No wonder air fares are high.
The other “obvious” answer – the Law of Demand
The flights I chose for my high price examples are in high demand. Barcelona was in the school holidays. New York was at short notice. On the New York flights, notices that only two, three or five seats were left at these prices were common.
There are either not many seats left or revenue managers probably expect most or all of them to sell.
The third “obvious” answer – governments tax air travel
Airlines like everyone else have to pay taxes. The British government imposes Air Passenger Duty. When I was working in South Africa with BA franchisee Comair one of my projects was to understand the impact of VAT on the airline’s aggregate demand curve.
Some airline inputs are not taxed – jet fuel for example. There is no VAT on air fares in the UK – there is little point, many business travellers would just claim it back.
What is taxed is employment. British airlines must pay their employees enough that they can live in a high cost city after Income Tax, National Insurance, Employer’s National Insurance and Student Loans.
Airline employees in many other countries must suffer the equivalents. Even in places like Qatar where there is no Income Tax, other hidden charges eat up income. Tax of some sort is inevitable and it pushes up the cost of air travel like anything else.
Airlines charge a premium for direct flights
Those £10,000+ Club tickets to New York are a slightly more reasonable €9,014.00 (£7,874.20) for passengers flying out of Amsterdam and connecting in London, a 21.7% discount.
Some passengers are willing to pay more for direct flights because it saves them time and hassle. Airlines are happy to enjoy the surplus.
Tax distorts willingness to pay
Companies buy plane tickets out of pre-tax revenue. You and I buy tickets out of post-tax income.
Remember how those flights to Barcelona were £4,170.20? A company spending that money on employing somebody would generate £1,793.19 for a higher rate British taxpayer, which sounds much more reasonable for four holiday flights to and from Barcelona.
Club flights to New York at £10,054.42 would translate, if spent on employing somebody instead, into £4,323.40 of disposable income. Which still sounds expensive but might work for some as a special treat.
But airlines neither see nor care whether or not the money comes from pre-tax revenue or post-tax income.
One Pound of income for a consumer might be worth two Pounds of cost for a company. But for the airline those Pounds are the same. Airlines price for what the market will provide. If businesses are in the market for a flight, their willingness to pay will crowd out the consumer segment.
