Hopper’s Consumer Airfare Index Remains at Historic Lows - Hopper Research

Hopper’s Consumer Airfare Index Remains at Historic Lows

Patrick
By Patrick Surry
Posted Nov 5, 2015

Summary

  • Airfare prices were a whopping 17% lower this October than the same time last year
  • We found that much of this drop can be attributed to this year's dramatic decline in oil prices
  • For the rest of this year (November and December), we project that prices will average about $212, or 16% cheaper than in 2014
  • Prices are expected to bottom out in January at $205

Forecasting 2015 and Early 2016

Looking forward, Hopper anticipates its Consumer Airfare Index will bottom out in January before rising again in anticipation of spring:

Figure 1: Actual average domestic consumer airfare prices through September 2015 (solid line), with eight-month forward forecast price levels (dashed), comparing current and projected prices.

What informs our prediction for the future? Typically, after prices drop sharply at the end of the summer, they begin to stabilize as holiday travel demand replaces summer demand. By December, most holiday tickets are purchased, causing prices to decline again in the new year. This fall, prices continued to tumble through September and only now have begun to stabilize. Going forward, we predict mild price declines through the rest of the year and an increase during the spring months.

Screen Shot 2015-11-05 at 4.46.33 PM

Tracking Domestic Airfare in October

Looking back, prices stayed flat between September and October, increasing by just 0.1%. This meant that the average price of a round-trip domestic flight remained at $213.

While it is broadly expected that prices in the fall will be lower than in the summer, it's noteworthy that the typical fare is now 17% lower than in October 2014, when it was measured at $257. Prices this year are well below last year's levels, and we expect consumers to continue enjoying better deals for the foreseeable future.

Figure 2: Actual average domestic consumer airfare prices through October 2015

Figure 3: Year over year change in average domestic airfare, through October 2015 (solid line), with eight-month forward forecast (dashed).

In October, consumers were searching for flights a median of 33 days ahead, which is consistent with what we've observed this year but higher than in years previous. This puts the typical departure date in the middle of November, the beginning of the holiday travel season. Last year at this time, the median search was only 28 days in advance.

Figure 4: Median advance purchase time between shopping for flights and departure. Higher values mean consumers are booking farther in advance.

Exploring This Year's Low Prices

Prices this year have been significantly lower than last year, and predictions indicate that they will continue to stay low through the winter. Lower fuel costs are one factor we've consistently cited as a cause of this year's lower prices and we wanted to dig in deeper and explore to what extent this is driving the great prices consumers are enjoying. While the plunge in fuel prices early this year has not been completely reflected in lower ticket prices, it did coincide with the pattern of lower airfare we've observed this year:

Figure 5: Our airfare index (left scale) compared to oil spot prices (right scale), showing how lower airfare this year coincides with decreased oil prices

It's evident that the seasonality in oil prices is broadly similar to the seasonality in airfare, with both rising at the same time this summer. While it's no surprise that oil prices rose this summer, it's difficult to disentangle the seasonal effect from the expectation that prices would eventually return to normal. After decreasing again in August and staying low in September and October, however, it's clear that low oil prices are, for now, here to stay.

Biggest Price Increases and Decreases coming up in November

We predict prices nationwide will increase slightly in November, though some airports will experience much bigger price increases. Here are the airports we predict will see the biggest average increase in the price of departing domestic flights in the month of November:

Screen Shot 2015-11-05 at 4.50.45 PM

On the other hand, some airports will experience decreases in price. Here are the airports we predict will see the biggest average decrease in the price of departing domestic flights in the month of November:

Screen Shot 2015-11-05 at 4.51.47 PM

Mapping Prices by State

The map below shows projected prices in November for flights departing from each state, illustrating how prices can vary across the country:

Figure 6: Average domestic airfare this November for flights originating in each state.

The more sparsely-populated states with fewer airports have higher prices. North Dakota tops the list with average prices over $400, while Florida, Nevada, and Illinois are at the bottom with prices under $200.

Smaller states also tend to have more volatile prices, evidenced by our November projections for airfare in each state. Prices are predicted to increase the most in Wyoming (nearly 10%) and decrease the most in West Virginia (nearly 10%).

Figure 7: Highest and lowest projected November changes in average airfare departing from each state

While the figures above show how much it costs to fly from a given state, it's also interesting to see how much it costs to fly to a given state:

Figure 8: Average airfare for flights arriving in each state, the opposite of Figure 5. The pattern here is similar: it's more expensive to get to more remote states with smaller and fewer airports. To look at average prices for flights from a specific airport, use our interactive consumer airfare index tool at http://www.hopper.com/flights/tools/priceindex/index.html

Methodology Detail

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.