Planes belonging to discount European airline Ryanair are pictured at Edinburgh Airport in Scotland. REUTERS/David Moir

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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 North American airlines versus European airlines, the latter is still significantly cheaper. What makes European air travel less expensive?

Partial Airline Deregulation

A Look At The Airline Industry

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 travellers 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 travellers more choices for departure and arrival points. Some of the smaller airports have lower landing fees and, therefore, tickets are less expensive. Travellers within the U.S. have fewer alternative options, which keeps pricing high.

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.

A Look At The Airline Industry

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.

Volume

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 North America. 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 North America in the next year, but should continue to lag behind.