The AOP Key Price Drivers is a content offering created in partnership with ProcurementIQ that looks at the direction of the primary price drivers of a product or service and how they combine to influence buying decisions.
Today we are reviewing domestic air travel.
Domestic air travel includes scheduled passenger routes within the United States and serves both consumer and commercial travelers. The following information pertains to First Class, Business Class, and Economy Class levels of service.
Domestic airlines have a high overhead (at 55.5%) and often operate at an overall loss. The travel industry was severely impacted by the COVID-19 pandemic, and while they sustained significant operating losses, consumer spending patterns have shifted to favor travel and experiences, leading to a rebound in demand and fueling competition between carriers.
How to Use this Information
While there are few practical substitutes for domestic air travel, there are many providers for most routes. Because business and leisure travelers buy from the same providers, and in some cases also use the same channels to book their flights, competition is high – as is transparency into pricing, service levels, and fees.
Prices for domestic air travel are expected to rise over the next three years due to a combination of factors. Crude oil prices remain high and volatile, and at 15% of the cost structure have a significant impact on prices. Labor shortages also present a challenge for airlines, and with a number of pilots unions going on strike in 2022, this remains a source of concern given that labor represents 27.5% of an airline’s cost to operate.
We have partnered with ProcurementIQ to dig into their treasure trove of over 1,000 indirect category intelligence reports, with new insights every Friday. To dig deeper into the domestic air travel category, click here.