Airfare Projected to Drop 8.2% This Fall - Hopper Research

Airfare Projected to Drop 8.2% This Fall

Patrick
By Patrick Surry
Posted Aug 8, 2016

Summary

  • As we projected last month, airfare has begun falling as the height of summer travel passes, with domestic roundtrip airfare declining to $217 this month
  • We're forecasting that airfare will fall a further 8.2% to reach an autumn low of $213 in October.
  • Domestic roundtrip airfare will be $216 this fall, less than 1% up on last fall and 16% below the fall of 2014.
  • Jet fuel fell about 7% in July, reversing recent gains. It remains almost 40% above the low point at the end of 2015, but is still cheaper than we've seen since 2009. Airlines likely still have room to discount further based on fuel savings.

Fall Forecast

Prices fell about 6.6% for the typical round-trip domestic flight in July as we past the peak travel season, and fuel prices declined somewhat. Prices are down about 8% compared to the same time last year, and 15% compared to two years ago.

Jet fuel reversed its recent upward trend, but is still inexpensive historically. Although airfare has been falling, the correlation between airfare and fuel prices has diverged somewhat since 2015, suggesting that airlines might still have room to discount based on fuel cost savings.

We're projecting that domestic airfare will be cheaper this fall (September through November). We forecast fares will fall a further 8.2% to reach an autumn low of $213 in October, just $1 above last fall's low point. In fact, prices will be up less than 1% compared to last fall and down 16% compared to fall of 2014.


Figure 1: Actual average domestic consumer airfare prices through July 2016 (solid line), with six-month forward forecast price levels (dashed).


Figure 2: Jet fuel declined slightly, falling 7% in July, and reversing the upward trend since its January low.



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


Table 1: Hopper's six-month forecast for consumer airfare, showing prices sliding through summer and bottoming out at about $210 in January.


Destinations to Watch on Hopper in August

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 August


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

Mapping Prices by State

To see how airfare from your state stacks up against the national average, our our interactive Consumer Airfare Index map and enter your home airport in the box.


Figure 4: Average price to fly to each given state.

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 5: Comparing monthly changes measured by Hopper's consumer airfare index with the BLS airfare consumer price index. The BLS index is strongly influenced by more expensive business-oriented trips whereas Hopper's index focuses on leisure-oriented consumer travel.