Historically Low Prices Continue in February 2016

Patrick Surry - Feb. 9, 2016

Summary

  • Domestic consumer airfare dropped to $211 in January, the lowest we've recorded
  • We're forecasting consumer airfare will be $214 for the month of February
  • We predict seasonal price increases peaking at $253 in June, about $21 below 2015's peak
  • With jet fuel prices dropping to 2003 levels, we could see additional discounting

Low Prices Predicted to Continue

Fares in January bottomed out at $211, as we predicted. January is traditionally the seasonal low point, but this was the lowest price we've observed in the last three years.

With oil prices continuing to plunge due to oversupply and weak demand, as well as aggressive price competition between carriers after their recent profit announcements, we could see further price declines in coming months. For example, benchmark jet fuel prices have fallen a further 15% since December, recently trading at $0.85/gallon, the lowest price since December 2003. We typically see a two month lag between fuel price movements and airfare changes.

We're projecting consumer airfare will be about $214 in February (1.67% increase from last month).

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

Figure 2: Historical airfare data scaled to match Hopper's consumer airfare index, compared to US Gulf Coast kerosene-type jet fuel prices. Recent airfare has dropped to 2010 levels, with jet fuel is trading at the lowest price in more than a decade. Airfare tends to lag fuel price changes by about two months.

Table 1: Hopper's six-month forecast for consumer airfare, showing prices peaking in June.

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 popular February destinations 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 2: Domestic destinations most likely to drop in price on Hopper

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

Mapping Prices By State

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

Figure 3: 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 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.

Figure 4: 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.

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