Oil Price and Summer Bookings Driving Airfare Higher - Hopper Research

Oil Price and Summer Bookings Driving Airfare Higher

Patrick
By Patrick Surry
Posted May 31, 2016

Summary

  • Domestic roundtrip airfare rose 8.7% in May to $244, three percentage points above our forecast. This is the largest percentage increase we've recorded since we began tracking three years ago.
  • Although oil prices have recovered about 30% above their recent floor, jet fuel still costs less than it has in more than a decade.
  • We project airfare to peak in June at $249, down 9.2% below last year's peak, and 17% below the peak two summers ago.
  • Trending Destinations: We're seeing increased search demand for big city getaways, and less interest in traditional resort destinations.

Consumer Airfare in June

Prices rose almost 9% for the typical round-trip domestic flight in May, driven by increasing summer demand and recovering oil prices. May prices are down 10.5% from last year and about 18.8% compared to two years ago. Airfare is currently at lower seasonal levels than they've been since 2010, although jet fuel is trading at prices not seen since 2004.

We're projecting consumer airfare will top out at $249 in June, a 2.2% increase from May. This would still be 9.2% below last year's peak, and 17% below the peak two summers ago.


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

Figure 2: Recent jet fuel prices compared to consumer airfare. Fuel prices have recovered about 30% above their floor, apparently leading to accelerating airfare price increases.


Figure 3: A longer range view shows that jet fuel is still cheaper than it's been in more than ten years, and airfare is still inexpensive on a seasonal basis.


Table 1: Hopper's six-month forecast for consumer airfare, showing prices peaking in June, but still 9.2% below last year's peak, and about 17% below summer two years ago.


Trending Destinations

These are the destinations that gained (and lost) the biggest search share on Hopper since last month.


Table 2: Domestic destinations with the biggest increase (left) and decrease (right) in search demand on Hopper since last month.


Table 3: International destinations with the biggest increase (left) and decrease (right) in search demand on Hopper since last month. Some great sales to Australia and New Zealand drove a lot of interest, and Europe continues to slide.


Destinations to Watch on Hopper in June

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 4: Domestic destinations most likely to drop in price on Hopper in June


Table 5: International destinations most likely to drop in price on Hopper in June

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.