Hotel School expert tells lawmakers about the high cost of local air fares

By Darryl Geddes

Air travelers in small, underserved communities -- such as Ithaca -- where there is low demand for air travel will continue to pay higher air fares than normal unless greater competition moves into the market, says Malcolm Noden, senior lecturer in management, marketing and tourism at the School of Hotel Administration.

Noden made his remarks last month in Syracuse before the subcommittee of the U.S. House Aviation Committee chaired by Reps. John J. Duncan (R-Tenn.) and James Walsh (R-N.Y.). The panel was hearing testimony from academics and airline industry representatives on why airline ticket prices appear more expensive in central New York than elsewhere.

Noden said local fares on average will be higher than fares out of Syracuse. An expert in tourism policy, promotion and development, he gave lawmakers a brief overview of airline economics, maintaining that air travel is an expensive proposition because it is a business characterized by a high fixed-cost environment.

"Examination of carrier financial records indicates that approximately 65 to 70 percent of an airline's costs are directly related to the operation of aircraft," he told lawmakers.

But Noden said air travel becomes even costlier to the consumer when competition is non-existent.

"Studies by the General Accounting Office have suggested that small city airline seat pricing is significantly more aggressive on the part of carriers, mainly because the barriers to competition in such markets are very high," he said. "Thus, it is a fact that certain small, short haul, origin destination markets have air fares that are very significantly higher, on a per-seat-mile basis, than long haul markets."

Noden said lower-priced promotional fares often do not benefit the business traveler who makes up a large majority of the small-market air passenger base.

"Often, these off-peak pricing strategies, which benefit one segment of the population, such as leisure travelers, who are less time sensitive and therefore can travel off-peak, are seen to be receiving a substantial price 'subsidy' from business travelers, who are more time sensitive and, thus, tend to travel at peak and pay higher prices.

Noden said prices would remain high as long as there is a lack of competition in the market.

"If you wanted to make a significant difference in reducing fares, without being reduced to government control of pricing, you need to encourage competition," he said. "To do that, you may need to provide subsidies for start-up carriers to help them get off the ground."