Airfare in 2015 To Bottom Out at $213

Patrick Surry - Jan. 31, 2016

Summary

  • Airfare prices were 14% lower this November than the same time last year
  • Much of this drop can be attributed to this year's dramatic decline in oil prices
  • Benchmark US jet fuel prices dropped again in November to $1.24, down 56% from August 2014
  • Looking forward, we project that prices will bottom out at about $208 in January, 15% cheaper than a year earlier

Forecasting Early 2016

Looking forward, Hopper anticipates its Consumer Airfare Index will bottom out in January before beginning the normal seasonal rise through the spring:

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

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 steady. Going forward, we predict mild price declines through January with prices increasing into the spring.

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Tracking Domestic Airfare in November

Looking back, prices increased slightly in November, by 3.2%, as holiday pricing remained firm. This left the average price of a round-trip domestic flight at $220.

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 14.3% lower than in November 2014, when it was measured at $256. Prices this year are well below last year's levels, and we expect consumers to continue enjoying better deals for the foreseeable future.

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

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

In November, consumers were searching for flights a median of 30 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 December, between the Thanksgiving and Christmas travel season. Last year at this time, the median search was only 24 days in advance.

Screen Shot 2016-01-04 at 1.51.47 PMFigure 4: Median advance purchase time between shopping for flights and departure. Higher values mean consumers are booking farther in advance

Biggest Price Increases and Decreases coming up in December

We predict prices nationwide will decrease slightly in December, though some airports will experience price increases. Here are the airports we predict will see the biggest average increase in the price of departing domestic round-trip flights:

Screen Shot 2016-01-04 at 1.53.43 PMOn the other hand, some airports will experience larger than average decreases in price. Here are the airports we predict will see the biggest average decrease for December:

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Mapping Prices by State

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

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Figure 6: Average domestic airfare this December 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 Massachusetts, Nevada and Florida are at the bottom with prices under $200.

Smaller states also tend to have more volatile prices, evidenced by our December projections for airfare in each state. Prices are predicted to increase the most in Kansas (nearly 20%) and decrease the most in West Virginia (nearly 15%).

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Figure 7: Highest and lowest projected December 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:

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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 traveling, 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 9: 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 eighth month we've published a forecast - allowing us to track our current estimates against what we've predicted previously.

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Figure 10: Comparing our current consumer price index and forecast (solid, dashed red) with our prior month's forecast (solid blue), showing a slight upward revision this month.

Prices in November were slightly higher than expectations, with holiday pricing remaining firm:

Month

Price (Observed)

Price (October Forecast)

Revision/Error

November 2015

$220

$215

$5

As a result, we've made a small upward revision to our forecast going forward:

Month Current Forecast October Forecast Forecast Revision
December 2015 $213 $209 $4
January 2016 $208 $205 $3
February 2016 $213 $210 $3
March 2016 $224 $220 $4
April 2016 $229 $225 $4
May 2016 $245 $240 $5
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