Airfare expected to peak next month - Hopper Research

Airfare expected to peak next month

Patrick
By Patrick Surry
Posted May 10, 2017

Summary

  • This month, we project a 8.1% increase in domestic flight prices from $239 in April to $258 roundtrip from as demand continues to pick up as people search for and book their spring travel
  • Flight prices are expected to be up 5.8% compared to the same time last year
  • We're forecasting that prices will continue climbing the next two months with prices peaking in June at $263
  • Jet fuel increased 6.5% in April, increasing to $1.54, still approximately half the recent high in Feb 2014
  • Foreign low cost carriers will drastically increase seat capacity, up 53% from May of 2016

Prices are expected to be up about 5.8% compared to the same time last year, but down 4.4% compared to two years ago. The price of jet fuel increased about 6.5% this month but still approximately half the price of early 2014. Flight prices are expected to continue their upward trend, which is normal for the season, as travelers continue traveling in spring and begin booking summer vacation travel. We're projecting that domestic airfare will continue rising in May to $258 and peaking in June at $263 before falling sharply in July and August to $245 and $230 respectively.

Figure 1: Actual average domestic consumer airfare prices through April 2017 (solid line), with six-month forward forecast price levels (dashed), showing airfare rising until the peak in June at $263.


Figure 2: Jet fuel increased 6.5% in April, reaching $1.54/gal.


Figure 3: A longer range view shows that jet fuel prices have dropped to 2009 levels. Airfare has been on a controlled downward trend for the past 3 years and is starting to reflect 2009 price levels.


Table 1: Hopper's six-month forecast for consumer airfare, showing prices rising during travel season to a peak of $263 in June before beginning to fall again.

Destinations to Watch on Hopper in May

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 May.


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


Table 4: Origins with the cheapest average price per mile flown in May


Capacity

Both US and foreign major carriers will offer similar capacities as they did last year (YoY changes range from 1-4%). LCC capacity over the past year, however, has drastically expanded; US LCCs show a YoY capacity increase of 15% and 13% in domestic and international markets respectively, and foreign LCCs show an impressive 53% YoY capacity increase.

US Domestic Flights


Table 5: Breakdown of seats flown within the US on major carriers and low cost carriers

US International Flights

Table 6: Breakdown of seats flown between the US and international destinations, organized by major carrier vs low cost carrier and US carrier for foreign carrier

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.

The capacity section looks at total scheduled seats across major carriers and low cost carriers (LCC's). US Domestic Flights includes all scheduled seats on flights within the United States and US International Flights includes all scheduled seats on flights between the United States and destinations outside of the United States. Change from May 2016 is calculated by comparing scheduled seats for flights in May 2017 with flown seats in May 2016.

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.