PRICES, FARES, AND YIELDS

The most common measure of airline fares is average yield, which is the ratio of revenues to passenger-kilometers. This paper demonstrates that changes in yield overstate changes in fares. This is done first with a small numerical example, and second by comparisons between U.S. yield and ticket sample data. Average yield declines in part because long-haul travel in growing faster than short-haul, and leisure travel in growing faster than business. Both effects depress yields even when prices are not changed. Data suggests that business fares have been flat, while discount fares have been declining.