Airfare expected to dip this month before rising for travel season - Hopper Research

Airfare expected to dip this month before rising for travel season

Patrick
By Patrick Surry
Posted Jan 11, 2017

Summary

  • We project a slight decrease in flight prices this month to $222 due to a drop in demand as the holiday season ends and the spring travel season has yet to begin
  • Flight prices are up about 8% compared to the same time last year, but down 9% compared to two years ago
  • We're forecasting that prices will continue climbing the next six months with prices peaking in June at $271
  • Jet fuel rose 8.6% in December, increasing to $1.47, though still less than half the recent high in Feb 2014

Post-Holiday Airfare Decrease Expected

Prices are up about 8% compared to the same time last year, but down 9% compared to two years ago. The price of jet fuel rose about 8.6% in the month but is still less than half the price of early 2014. The good news is that flight prices will dip this month as airlines bridge the lull in travel between the holiday season and spring break/summer travel. We're projecting that domestic airfare will drop in January to $222 before rising as travel season starts, peaking in June at $271.

Figure 1: Actual average domestic consumer airfare prices through December 2016 (solid line), with six-month forward forecast price levels (dashed), showing airfare bottoming out in January.

Figure 2: Jet fuel rose 8.6% in December, reaching $1.47/gal.


Figure 3: A longer range view shows that jet fuel is still cheaper than it's been since 2009, but that airfare - although trending down - does not appear to reflect the full extent of the decline in fuel prices.


Table 1: Hopper's six-month forecast for consumer airfare, showing prices dipping due to a post-holiday lull in January and then rising during for the travel season, peaking at $271 in June.


Destinations to Watch on Hopper in January

The Hopper app predicts future flight prices with 95% accuracy. If you select the "Watch This Trip" button, Hopper will constantly monitor prices and notify you the instant you should buy.

We calculated popular destinations for upcoming travel where you could save most by watching prices in Hopper. If you're interested in visiting any of these destinations in the next few months, we recommend setting your watch on Hopper now so that you can be alerted about price drops this month.


Table 2: Domestic destinations most likely to drop in price on Hopper in January. We're expecting significant discounting to Florida and other warm destinations.


Table 3: International destinations most likely to drop in price on Hopper in December

Methodology

Our Consumer Airfare Index combines search data for every origin and destination in the United States, providing a near real-time estimate of overall airfare prices - unlike other comparable indices that can lag by several months.

Our Consumer Airfare Index represents the price of tickets available for purchase in a given month, not necessarily for travel in that month. Since travel prices are represented in both time dimensions -- time of purchase and time of travel -- it can be difficult to interpret price dynamics. We use date of purchase because it reflects the price consumers are paying at a given point in time, and we report it alongside the typical advance purchase date to give an idea of how these prices translate into travel dates.

Other indices simply take the average of all fares to represent overall price which skews the results toward expensive fares and can give an unrealistic impression of the true cost of flying. We instead use what we consider to be a "good deal" for each route to reflect what consumers should reasonably expect to pay.

Since our index is constructed and forecasted at the origin-destination level, we can also provide comparable estimates for any combination of routes and extract insights on pricing not only across time, but also across different markets. We use monthly passenger data from the Bureau of Transportation Statistics to ensure that each domestic route is properly represented in the final index based on its share of total passengers.

When predicting future prices, we also consider a few key features of airline pricing. First, prices within a given route will fluctuate with the number of passengers.

Second, prices change predictably with the seasons, especially during the peaks of summer and holiday travel. Of course, much of this variation has to do with increased demand - but in peak travel seasons, airlines can raise prices not only because there are more people interested in travelling, but also because the average traveler is willing to pay more for their summer vacation or trip home for the holidays.

Finally, changes in prices may persist, especially if there are underlying conditions pushing prices up or down, as these effects may be spread over several months. Conversely, the opposite may be true - after a big price increase or drop, fares are more likely to change in the opposite direction in future months. Since dynamics like these and the above aren't always consistent, we evaluate future prices at the origin-destination level to capture the unique properties of pricing for different routes.

Of course, predicting the future is no easy task, and many factors that influence pricing are simply unforeseeable. However, by exploiting the factors that are predictable, like trends in passenger distribution, seasonal variation, and recent price activity, it's possible to extract insights about the near future of pricing.

Historical Analysis and Comparisons

Our index generally tracks the Bureau of Labor Statistics' Airfare Consumer Price Index, which is a related aggregation of the prices consumers pay to fly but is more strongly influenced by more expensive business-oriented travel. It's also released on a more delayed schedule than our index.

Figure 4: Comparing monthly changes measured by Hopper's consumer airfare index with the BLS airfare consumer price index.