Hopper’s Australian Airfare Index Continues Downward Trajectory

Patrick Surry - Jan. 31, 2016

Summary

  • Hopper finds that average Australian airfare in October was A$376, 3.5% cheaper than in September but 2.3% more expensive than October 2014

  • For the rest of this year (November and December), we project that prices will average about A$368, or 1.7% cheaper than the same time in 2014

  • Prices will bottom out in January at A$351

Forecasting 2015 and Early 2016

We aggregated our historical flight data for Australian flights (domestic and international destinations) to track and forecast pricing trends. We report history starting in October 2013, though our sample of international flights became much more robust starting at the beginning of 2015.

Looking forward, Hopper anticipates its Australian Airfare Index will bottom out in January before rising again in the first half of next year:

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

What informs our prediction for the future? Over the past few years, airfare in Australia has typically peaked at the end of fall or beginning of winter before declining. This year, prices at A$403 in April before declining to their current level at A$376. We anticipate this pattern will continue the rest of the year before the next seasonal increase.

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Tracking Domestic Airfare in October

Looking back, prices decreased by 3.5% from September to October, continuing an overall decline that we've observed since April. Despite this, prices are still 2.3% more expensive than the same time last year. As prices continue to fall, we expect them to be below their 2014 levels by the end of the year.

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 36 days ahead, which is consistent with what we've observed this year. This puts the typical departure date in the middle of November.

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

Biggest Price Increases and Decreases coming up in November

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

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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 flights in the month of November:

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Prices by State

While prices overall are projected to remain roughly the same next month, there is some variation within departure state:

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Methodology Detail

Our Australian Airfare Index combines search data for popular routes originating in Australia, providing a near real-time estimate of overall airfare prices.

Our Australian 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 two 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.

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 Infrastructure, Transport, and Regional Economics to ensure that each domestic and international 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. 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. From recent data, it appears that the most expensive months for Australian flights are between March and July.

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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