Airfare Will Drop Slightly in October before a Thanksgiving Bounce - Hopper Research

Airfare Will Drop Slightly in October before a Thanksgiving Bounce

Patrick
By Patrick Surry
Posted Oct 3, 2016

Summary

  • Airfare continued to drift lower, with good deals for domestic roundtrip airfare dipping to $216 in September close to our forecast of $214.
  • We forecast fares will decline a further 1.6% in October to $213, before a Thanksgiving bump in November and dropping to their annual low point in January at $210.
  • Jet fuel regained August losses, but remains historically inexpensive, at about $1.30/gal

Lower Airfares Here for Fall

Airfare continued to drift lower, with good deals for domestic roundtrip airfare dipping to $216 in September close to our forecast of $214. Prices are up about 2.1% compared to the same time last year, but down 16% compared to two years ago. Jet fuel was marginally higher, but is still inexpensive historically.

We're projecting that domestic airfare will slide a further 1.6% in October, with a slight bounce in November due to holiday bookings. Average airfare in the last quarter of 2016 is forecast at $215, about $1 above last year but 16% below the same period in 2014.

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


Figure 2: Jet regained the ground it lost in August, rising 0.8% in September to about $1.30/gal.


Figure 3: A longer range view shows that jet fuel is 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 flattening out through the fall with a Thanksgiving bump in November and then bottoming out at about $210 in January.


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.