Prices of domestic airfares have actually declined, according to major study by fly.com. I think I can see how this happened, but what's your call?
Another finding: Prices to European destinations have risen dramatically, but far fewer Americans want to go there. Is that because of the money such a trip would cost, or is it because Americans no longer have the desire to visit those Godless, welfare-state foreigners?
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Let me address the second one: Inspite of the problems with Euro; prices of food remains really high to a non-eurozone person. I was in Amsterdam earlier this month, and a simple sandwich with a stein of beer cost me 20EUR at a local cafe. With each visit I feel I am eating less and paying more in most of Europe :(
As to the airfares, it is insane. The airlines have reduced capacity and withdrawn from route pairs to sustain higher per seat revenues. I find the flights to anywhere in Europe (pre-summer) are higher than normal. I want to visit Floriade 2012 in Netherland, but flights to both AMS & BRU are in the 800+ range.
The first results of Google's acquiring ITAsoftware is http://google.com/flights This allows one to see, how far your dollar goes. Plug in your dates, and then keep increasing the airfare and you can see destinations on the map that you can go to ... say from NYC to places domestically & Internationally.
Anil, I hope at least it was good beer, very good beer. You're right about how the money adds up, the reduced flight capacity, and the virtues of Google's ITAsoftware. To tell you the truth, I hope it is indeed the money that's stopping people from traveling, and not just a diminished interest in foreign countries.