Hopper’s Consumer Airfare Index increased 7.1% in May, in line with April predictions of 6.4%

Patrick Surry - Jan. 31, 2016

Summary

  • Domestic airfare increased 7.1% between April and May, very close to our prediction of 6.4% last month

  • Airfare from Houston rose by a dramatic 12.6% last month while airfare from Raleigh/Durham only increased by 1.2%

  • Prices are 8.7% cheaper this year as compared to last year

  • We predict that peak prices this summer will be $18 cheaper than last year, a decrease of 6.1%

Tracking Domestic Airfare in May

Our aggregate domestic airfare index increased by 7.1% from April to May, reflecting continuing demand for late spring and summer travel. This puts the average price of a round-trip domestic flight at $271, up from $253 last month. This follows the less dramatic 1.8% increase we reported last month. Screen Shot 2015-06-01 at 10.16.16 AM

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

It’s not surprising that fares continued to increase in May, as fares typically increase throughout the spring to account for increased demand. Last year, our index increased by 3.4% in April and 4.6% in May -- so while the specifics may be different, the overall pattern is the same.

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Figure 2:  Year over year change in average domestic airfare, through May 2015 (solid line), with six month forward forecast (dashed).

While the current increase is largely seasonal, it’s noteworthy that last month’s average fare has declined 8.7% from May 2014, when it was estimated at $297. Prices at the beginning of last year were unusually elevated compared to the previous year, before dropping in the second half of the year. After a particularly steep decrease in February, prices this year are still well below last year’s despite the increases throughout the spring. While prices will likely increase further next month, consumers have so far been enjoying better deals and can expect more of the same through the rest of the year.

In May, consumers were searching for flights a median of 34 days ahead, down from 36 days in April but still considerably higher than what we’ve historically observed at this time of the year. This puts the typical departure date in June or early July, the heart of the summer travel season. Last year at this time, the median search was only 25 days in advance.

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Figure 3:  Average advance purchase time between shopping for flights and booking. Higher values mean consumers are booking farther in advance.

Biggest Price Increases and Decreases

Not all markets experienced the same price changes last month. Here are airports where departing domestic flights saw the biggest average increases in price from April to May:

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While these increases can be particularly dramatic, they mostly reflect routes with disproportionately large seasonal effects and routes that had previously been unusually cheap. Houston is at the top of the list, with an increase of 12.6%, but this is not surprising given the prices that we’ve seen over the last few months. Back in February, prices to depart from Houston were nearly 21% cheaper than the year before. Since then, prices have been rapidly returning to normal - they increased by 18% in March, then stayed flat in April, and after the big increase in May they’re actually 2.7% more expensive than last year.

Airfare increased across the board at major airports, but these markets experienced the smallest increases:

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Mapping Prices by State

The map below shows the current price index for flights departing from each state, illustrating how prices can vary across the country:

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Figure 4:  Average domestic airfare for flights originating in each state.

The more sparsely-populated states with fewer airports have higher prices. Wyoming, North Dakota, and Arkansas top the list with average prices over $400, while Missouri, Rhode Island, and Nevada are at the bottom with prices just over $200.

Smaller states also tend to have more volatile prices, and there were some pretty dramatic increases last month. Here are the biggest winners and losers, compared to the nationwide price increase:

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Figure 5:  Highest and lowest monthly 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 6:  Average airfare for flights arriving in each state, the opposite of Figure 4. 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

 The pattern here is very similar: it’s more expensive to get to more remote states with smaller and fewer airports. To instead see how much it costs to fly to each state from your home airport, check out our interactive map.

Forecasting 2015

Looking forward to the rest of 2015, we anticipate that prices will peak at $279 this month (June) after an increase of 2.9%. Relative to last summer’s peak of $297, peak prices will be $18 and 6.1% cheaper.

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Figure 7:  Actual average domestic consumer airfare prices through May 2015 (solid line), with six month forward forecast price levels (dashed), comparing peak historical and projected prices.

Why do we think peak prices will be so much cheaper this year? It’s mostly due to how late and low prices bottomed out this winter relative to last year. Last year the index reached its lowest point in January, at $254, before rebounding strongly in February and March. This year, prices were even lower in January and continued to fall in February. Prices this spring increased at a seasonably-appropriate rate, but it hasn’t been enough to close the gap. With only one month of increasing prices anticipated, the peak can only be so high.

Beyond this summer’s peak, if you’re already thinking about holiday travel, prices aren’t expected to rise again until September. As the year goes on, we’ll have a better idea of when, generally speaking, to buy your tickets for Thanksgiving or the winter holidays.

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Methodology Detail

Our 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.

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 which is more strongly influenced by more expensive business-oriented travel.

 Screen Shot 2015-06-01 at 10.53.23 AM Figure 8:  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 third month we’ve published a forecast - allowing us to compare our current estimates to what we’ve predicted previously.

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Figure 9:  Comparing our current consumer price index and forecast (solid, dashed black) with our prior month’s forecast, showing only minor revisions.

Last month, we predicted a 6.4% price increase in May and a summer peak of $278, 6.4% lower than 2014. We instead observed a 7.1% increase in May - higher than what we predicted, but consistent in sign (greater than zero) and acceleration (price growth is much higher than the previous month, which we observed at 1.8%). Back in March, we predicted a 6.8% increase in May and a summer peak of $280 - so all of the forecasts we’ve published so far have been consistent.

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Since the May data was consistent with our expectations, we have not revised our projection for 2015 substantially - price growth in June is now predicted to be slightly weaker, though this month’s higher than expected growth leaves the summer peak $1 more expensive.

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