This is largely a result of high demand meeting lower supply. Consumer airline spending increased 60% year-over-year while airlines battle increased costs, staff shortages, and schedules that are not yet fully back to normal.
But across the pond, European ticket prices are considerably cheaper. On a “base fare per mile” basis, European flights cost as little as a third of US costs for flights of the same distance.
This isn't a new phenomenon, and aviation discussion boards have long debated this discrepancy. But why do US flight prices differ from those offered in Europe?
While the European airline industry was deregulated later than in the United States, when that deregulation came, it went further.
The open skies policies adopted in the EU in the 1990s provided Europe with a far more expansive legislative framework, allowing any EU-based carrier to fly between any EU nation-states. For example, the Irish carrier Ryanair can operate freely from Frankfurt to Madrid in direct competition with German and Spanish carriers on the route.
By contrast, the only airlines able to operate between US cities are US-controlled ones. The rules require that US citizens own or control at least 75% of the shareholders' voting interest and that the president, two-thirds of the company directors, and the managing officers must be US citizens.
While the US, Canada, and the EU have long debated the potential of an open skies policy encompassing all three, thus far, the North American governments have bowed to the protectionist interests of their airline lobbies.
The net result of the open skies policies in Europe was that by the turn of the century, low-cost carriers (LCCs) had introduced a new level of competition to the market, which put downward pressure on ticket costs.
At the same time, the US embarked on an unprecedented level of market consolidation with the likes of the Delta-Northwest, United-Continental, and American-US Airways mergers, effectively reducing market competition.
This has resulted in significant differences between the two markets in terms of competition:
- Number of airlines: Europe has 195 airlines offering scheduled passenger service, while the US has less than half that with 83 scheduled airlines, of which only 18 are considered major carriers. Europeans have far more competitive options.
- Market fragmentation: In the US, nearly 80% of the market share belongs to the five largest carriers. In Europe, IATA reports that it takes 28 airlines to get to 80% market share, more than five times the level of competition.
- LCC market share: LCCs account for 34% of the US market but are far more dominant in major European markets such as the UK (51%), Spain (54%), and Italy (59%).
The US is no stranger to budget airlines, as Southwest is the original LCC. However, the differences are stark when comparing Southwest's competitive impact in the US to Ryanair's in Europe.
Southwest operates to 115 destinations, while Ryanair operates nearly double that at 228. Its complex web of operations results in 2,400 separate routes across Europe, competing with the likes of easyJet (1,018 routes) and Wizz Air (776 routes).
This heightened competition results in the average cost of a Ryanair one-way ticket being $60, just 40% of the $150 average cost at Southwest and lower than the $100 average cost at Spirit Airlines.
This is a big advantage to European travelers, but it's not like Ryanair is losing out. Even at those dramatically lower costs, Ryanair has been able to produce record profits.
Other factors in Europe serve to heighten the competition still further, driving down the costs of flights even more. These include:
- Transport alternatives: Europe has nearly 4,000 miles of high-speed rail network, a genuine alternative to air travel. While generally more expensive, it can be quicker and more convenient, especially for business travelers. Aside from the Acela service in the northeast, rail poses no competitive threat to air travel in the US.
- Geographical advantages: Europe's higher-density cities and their proximity to each other allow for more daily sectors and greater cost efficiencies for carriers. Add to that the higher availability of smaller (lower cost) secondary airports, and all this plays to the customer's advantage.
- A bigger base of customers: In 2023, Europe had a higher number of airline passengers (976 million) compared to the US (862 million), resulting in a larger base to be served by more airlines, resulting in increased competition.
The only way to address the imbalance of ticket costs is to bring a European-style open skies policy to the US as well, which will draw in new carriers and heighten competition.
This has been debated between the US and Europe since 2006 when the Bush Administration chose to stick with the rules for US-controlled airlines out of fear of the impact on the US market.
At the time, EU ambassador to the United States, John Bruton, said:
"We estimate that, once an agreement was fully implemented, the savings to US consumers under a truly open-skies policy would amount to more than $5 billion annually while providing far greater connectivity across the country."
While the US government had legitimate concerns at the time, given the number of US carriers that were struggling financially, those concerns are no longer valid.
It has been well over a decade since a large US carrier filed for Chapter 11, and in that time, the market has experienced massive consolidation, with the most recent example being the Alaska-Hawaiian merger just last month.
As more market share becomes concentrated with fewer airlines, the US government is likely going to need to review its position and consider a European-style approach if it truly cares about the costs to US passengers.
