Airfare to Bottom Out in January - Hopper Research

Airfare to Bottom Out in January

Patrick
By Patrick Surry
Posted Dec 5, 2016

Summary

  • Airfare remained flat in October but increased to $222 in November, just $2 above our forecast for the month.
  • We project a slight decrease in December due to more spread out seasonal demand before fares bottom out in January at $212.
  • We're forecasting that domestic airfare this month will be about $216.
  • Jet fuel fell 7% in November, dropping to $1.35, which we haven't seen since summer 2016, and less than half the recent high in Feb 2014.

Holiday Airfare Price Increase Expected

Prices increased in November, as typical round-trip domestic flight prices rose to $222 since the end of October. Prices are up about 1% compared to the same time last year, but down 14% compared to two years ago. Jet fuel fell about 7% in the month and is still less than half the price of early 2014.

We're projecting that domestic airfare will fall about 2% this month as Thanksgiving is over and we enter the end-of-year holiday season, which has historically had lower prices than Thanksgiving. According to our projections, domestic airfare will be about $216 this month for non-holiday flights.

The good news is that the best flight prices of the year are right around the corner. Historically, flight prices bottom just after the holidays in January at $212 round-trip.


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


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 boosted by holiday travel purchases in November and then bottoming out at about $212 in January.


Destinations to Watch on Hopper in December

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 December. 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 5: Comparing monthly changes measured by Hopper's consumer airfare index with the BLS airfare consumer price index.