Why Flying is Getting More Expensive

I was struck today by an article in the New York Times (“On Jammed Jets, Sardines Turn on One Another”). As airlines pack more people onto planes, the flying experience (as least in Economy Class) becomes ever worse. This was hardly news to anyone who has flown domestically in the U.S. in recent years. Airlines have generally found that, in a market where tickets are bought online and the cheapest fare wins, charging more for better quality is not a winning strategy. Everybody knows that flying commercially in the U.S. has become worse. Seats are smaller with less legroom; food quality has fallen; needed security has trapped us all in terminals that are shopping malls such is the extra time needed to be processed. In short, the quality of flying has gone down.

The statisticians at the Bureau of Labor Statistics (BLS) would not agree. Why should we care what they think? Because this is where the Consumer Price Index (CPI) is calculated. Because products and services are routinely offered in different shapes and formats, simple month-to-month price comparisons don’t capture the complete picture. A jar of peanuts formerly 16 oz but now 18 oz has, if sold at the same price clearly experienced a price drop. So has a new, faster ipad if sold for the price of last year’s. Generally quality improves, and where it does the BLS registers a price decrease which is part of their methodology. But as I discovered when researching my recent book, Bonds Are Not Forever; The Crisis Facing Fixed Income Investors, airfares have mysteriously not registered a quality decrease, although there’s little doubt that’s what happened. Since 2000 the only change the BLS has recorded to the quality of flying is an improvement, due to easier cancellation terms.

In effect, the BLS has miscounted airline fare inflation, in that (for example) an unchanged price with lower quality is just as much of a price increase as if quality was unchanged but the price raised. The problem is that it’s hard to objectively measure how much the quality of flying has deteriorated.

Now it’s not hard to find conspiracy theorists who are convinced the government is deliberately understating inflation so as to curb its spending on all kinds of inflation-linked programs starting with Social Security. Clearly, the Federal government benefits from understated inflation. I am not among those who believe there is intentional manipulation of the statistics going on. It would be impossible to keep secret. But I do think that the inflation statistics produced do not measure what people think they are measuring. Growing your savings pot, or your income, at inflation (after taxes, naturally) isn’t going to maintain your standard of living, as this one simple example shows. Inflation figures have their place, but they’re not that helpful to the average saver.

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