How Airlines Stay Highly Profitable Despite Falling Ticket Prices

Falling airfare prices in the U.S. don’t appear to have any effect on airlines’ revenue, according to Goldman Sachs. In fact, Delta just reported record revenue and profits in the June quarter.

For those of you who happened to buy a plane ticket in the past month, you may have noticed a welcome change in price. Airfare was down a good amount in June compared to the same month in 2022 (-18.9%) and compared to May (-8.1%), according to this week’s consumer price index (CPI) data.

Declining jet fuel costs were the largest contributor to lower fares.

Although this benefits consumers, especially during the busy summer travel months, investors may be wondering: Will airlines generate less revenue as a result? Not so fast.

In a letter out this week, Goldman Sachs reports that there doesn’t appear to be a meaningful relationship between airfare CPI and U.S. airlines’ revenue per available seat mile (RASM). Investors, therefore, need not worry—at least not about falling ticket prices.

Check out the chart below. It compares annual percent changes in airfare and airline revenue per seat. Goldman found that there isn’t a strong link between the two, meaning that just because ticket prices are dropping, it doesn’t necessarily mean that carriers are making less money. The bank estimates that second-quarter RASM was off 3% compared to last year’s quarter, but that’s a far cry from how much fares fell during the same period.

The discrepancy between changes in airfare and US airline revenues