Finally: Low Oil Prices and Lower Demand Cause Mean BIG Airfare Savings - Hopper Blog

Finally: Low Oil Prices and Lower Demand Cause Mean BIG Airfare Savings

Ticket prices have reached historical lows due to a combination of factors. Hopper explores how much travel prices have dipped and why.

Dara
By Dara Continenza
Posted Oct 6, 2015

Flight prices really, truly, are getting cheaper. Hopper has been tracking this decreasing trend for some months now as part of our monthly Consumer Airfare Index, but our latest report reveals some surprises: Not only is average airfare lower than even we expected, it seems that oil prices are finally contributing to noticeably lower travel costs. Airfares for the next month are a full 9% cheaper this month than last, and a whopping 18% lower than at the same time in 2014.


First, it's worth mentioning that flight prices this year have been significantly lower than last year, and predictions indicate that they will continue to stay low through the winter. Lower fuel costs are just one factor we've consistently cited as a cause of this year's lower prices. And we haven't seen a dip this low until now.

Above, you can see our airfare index (left scale) compared to oil spot prices (right scale), showing how lower airfare this year coincides with decreased oil prices.

It's evident that the seasonality in oil prices is similar to the seasonality in airfare, with both rising at the same time this summer and falling at the same time this fall. While it's no surprise that oil prices rose this summer (they nearly always do), it's difficult to disentangle the seasonal effect from the expectation that prices would eventually return to normal. After decreasing again in August and staying low in September, however, it's clear that low oil prices are, for now, here to stay.

Here's how we estimate different factors contributed to the 9% drop in airfare this month:

Historically, oil prices have contributed relatively few changes in airfare, but over the past year its influence has grown, contributing to both increases and decreases over the past year. We're seeing one of those decreases now, but as the table shows, it's not just oil costs that are bringing lower-than-usual travel costs to you. In addition to a long-running trend of airfares declining due to market trends, seasonality, demand, and declining passenger volume (with fewer people taking vacations this time of year) contribute to low fares as well. Expect to see more airline deals and lower prices, especially to off-season destinations.

The upshot here is that we are seeing airlines pass on some of the fuel savings to consumers. Now is as good a time as any to fly.

For the rest of this year (October through December), we project that prices will average about $211 (a full 17% cheaper than in 2014), so you have plenty of time to set up that fall/winter vacation. Then, prices are expected to bottom out in January right around the $200 mark. Feel free to add a trip somewhere to your holiday wish list.


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