The price of an airline ticket has increased substantially worldwide over the past year as unrest in the Middle East once again worries investors about the oil supply. As fuel surcharges rise, the overall cost of travel jumps for the average consumer. In comparing the ticket costs for American airlines versus European airlines, the latter is still significantly cheaper. What makes European air travel less expensive? (For more, check out Airline Stocks Look Set To Soar.)

See More: The Industry Handbook

Partial Airline Deregulation

In the late 1990s, the airline industry in most of Europe went through a partial deregulation. This allowed a barrage of new airlines to enter markets where only a single national airline existed before. This increase in competition not only drove down prices for the new low-cost carriers, but also forced the legacy carriers to drop their prices to compete. This deregulation also created a substantial number of new routes around Europe, which allowed travelers to fly more often and more conveniently.

In the United States, low-cost carriers, such as JetBlue, have entered the market and put some downward pressure on prices, but this has not provided competitive motivation to the extent it has in European Union.

More Alternate Airports

The geography of many European countries lends itself to lower prices. The physical closeness of cities allows for more alternate airports to spring up nearby to established airports, in order to alleviate delays and air traffic snarls. London, for example, is serviced by its main airport, Heathrow, but has Gatwick, Stansted, Luton and City nearby. More airports allow travelers more choices for departure and arrival points. Some of the smaller airports have lower landing fees and, therefore, tickets are less expensive. Travelers within the U.S. have fewer alternative options, which keeps pricing high. (For closer look at the industry, read A Look At The Airline Industry.)

Excess Capacity

According to the International Air Transport Association, the United States has done an efficient job of cutting down capacity (both number of flights and number of planes) to reflect a reduction in demand for flights. This enables the U.S. to "right-size" its operations and cut down on the fixed costs of keeping flight routes.

The European Union, on the other hand, has been slower to react to a decline in demand and has more excess capacity. Because most of the costs of running a flight are fixed - meaning the cost is the same if there is one flyer or 200 - airlines are more willing to offer bargain airfares to fill the seats. This keeps the overall price of the average ticket lower in Europe.


The final reason that flights are cheaper in Europe is that there are simply more of them. Because of the density of the population, air travel is fast and convenient for most Europeans. The population of Europe is approximately 857 million versus America's 300 million in a space about two and a half times smaller. Europeans, on average, fly more often than Americans and airfares must compete with other convenient methods of traveling short distances, such as driving or taking the train.

The Bottom Line

There are several reasons why airfares are cheaper on average in Europe than the United States. Culture, geography, competition and regulation all play a part. Eventually, continued rises in oil prices will force prices to increase and the threatened recession is likely to dampen demand for tickets. Airfare costs in Europe will likely approach those of the United States in the next year, but should continue to lag behind. (To learn more, check out The Economics Of Discount Airlines.)

Related Articles
  1. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  2. Investing

    10 Cheap Vacations for the Ultimate Foodie

    If you are a foodie then explore one of these destinations in 2016.
  3. Personal Finance

    How Tech Can Help with 3 Behavioral Finance Biases

    Even if you’re a finance or statistics expert, you’re not immune to common decision-making mistakes that can negatively impact your finances.
  4. Economics

    Long-Term Investing Impact of the Paris Attacks

    We share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
  5. Savings

    These 10 Habits Will Help You Reach Financial Freedom

    Learn 10 key habits for achieving financial freedom, including smart budgeting, staying abreast of new tax deductions and the importance of proper maintenance.
  6. Savings

    Avoid the Worst Air/Rail Travel Fee Rip-Offs

    Airline fees can vary tremendously. We've compared them side-by-side – along with Amtrak's new charges – to determine who charges the most (and least).
  7. Budgeting

    How Much Will it Cost to Become President In 2016?

    The 2016 race to the White House will largely be determined by who can spend the most money. Here is a look at how much it will cost to win the presidency.
  8. Budgeting

    Six Most Popular Hobbies You Can Do For Free

    Does your budget not allow you to have expensive hobbies? Here are six great ideas for occupying your free time without spending money.
  9. Economics

    Who Stands To Lose (And Gain) From The Paris Attacks

    For every major world event, there are those who stand to lose and those who stand to gain. A look at the short, medium, and long-term impacts of the Paris attacks.
  10. Investing News

    How the Paris Attacks Could Impact the Economy

    The horrific terror attacks in Paris will have a ripple effect on comsumer spending and tourism.
  1. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  2. What is the range of deductibles offered with various health insurance plans?

    A wide range of possible deductibles are available with health insurance plans, starting as low as a few hundred dollars ... Read Full Answer >>
  3. How do I know how much of my income should be discretionary?

    While there is no hard rule for how much of a person's income should be discretionary, Inc. magazine points out that it would ... Read Full Answer >>
  4. What proportion of my income should I put into my demand deposit account?

    Generally speaking, aim to keep between two months and six months worth of your fixed expenses in your demand deposit accounts. ... Read Full Answer >>
  5. How do I use the rule of 72 to estimate compounding periods?

    The rule of 72 is best used to estimate compounding periods that are factors of two (2, 4, 12, 200 and so on). This is because ... Read Full Answer >>
  6. How much risk is associated with subprime mortgages?

    A large amount of risk is associated with subprime mortgages. Since the mortgages are specifically for people who do not ... Read Full Answer >>

You May Also Like

Trading Center