Consumer Airfare Index Predicted to Bottom Out This Month - Hopper Research

Consumer Airfare Index Predicted to Bottom Out This Month

Patrick
By Patrick Surry
Posted Jan 11, 2016

Summary

  • We predict that our consumer airfare index will bottom out at $210 in January
  • We expect seasonal price increases through spring, peaking in June about $20 below 2015 levels
  • Much of this drop can be attributed to this year's dramatic decline in oil prices

Forecasting 2016

Last year we observed a big dip in flight prices due to increased competition, decreased jet fuel prices, and airlines moving into branded, unbundled ticketing with lower base fares and optional fees (such as checked bags).

That trend will continue, with January 2016 offering a historical three-year low of about $210 per round-trip (14.2% lower than January 2015). Flight prices will be down 2.53% from last month. Spring fares will rise steadily and summer fares will see their usual spike due to seasonal demand, yet consumers will see better prices, more fare sales, and flexible ticketing options for the foreseeable future.

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Figure 1: Actual average domestic consumer airfare prices through December 2015 (solid line), with six-month forward forecast price levels (dashed).

Screen Shot 2016-01-11 at 8.42.58 AM Table 1: Hopper's six-month forecast for consumer airfare

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 the destinations where prices are most likely to drop in price in January and the amount you could save by having Hopper watch prices for you. 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.

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Table 2: Domestic destinations most likely to drop in price on Hopper in January

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

Mapping Prices by State

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

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Figure 2: 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.

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Figure 3: 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.

This is the ninth month we've published a forecast - allowing us to track our current estimates against what we've predicted previously.