Examining Consumer Airfare In Canada

Patrick Surry - Jan. 31, 2016

Summary

  • The average domestic flight for leisure travelers in Canada cost about C$508 in January 2016
  • Airfare in Canada is down 7.3% domestically (5% internationally) compared to last year
  • This drop is much bigger when measured in USD terms (about 20%)
  • Much of this drop can be attributed to this year's dramatic decline in oil prices
  • The decline in airfare prices we've observed in Canada is even greater than drop we've observed in the US (20% USD vs. 15% USD)

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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, as we observed domestic airfare in Canada at C$508, a drop of about 7.3% domestically (5% internationally) compared to the same time last year. However, the drop is much bigger when measured in USD terms (about 20%), with the typical domestic fare at US$376. This mirrors the drop we've seen in fuel prices, and is even larger than the airfare price slide we've seen in the US (closer to 15%). It's possible perhaps because Canadian Dollar operating costs become relatively less expensive.

Destinations to Watch on Hopper in February

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 February 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 when they happen.

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Table 1: Domestic destinations most likely to drop in price on Hopper in February

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Table 2: International destinations most likely to drop in price on Hopper in February

Methodology

Our Consumer Airfare Index combines search data for every origin and destination in Canada, 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.

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