Looking forward to the rest of 2015, Hopper anticipates its Consumer Airfare Index will decline sharply through the rest of the summer and then stabilize through the fall and early winter.
Figure 1: Actual average domestic consumer airfare prices through June 2015 (solid line) with six month forward forecast price levels (dashed), comparing peak historical and projected prices.
What informs our prediction for the rest of the year? Typically, prices will fall during the latter part of summer before stabilizing in the fall. Since this summer was cheaper than last summer, we expect prices to remain lower than last year through the rest of this year, returning closer to normal by the end of the year.
This fall (September through November) prices will average $248, or 3.6% cheaper than in 2014 and 8.1% cheaper than in 2013.
Looking back, prices increased by 1.3% from May to June reflecting the winding down of ticket purchasing for summer vacation. This puts the average price of a round-trip domestic flight at $276, up from $272 in May. We revised our May estimate up from $271 after incorporating more complete ticket search data, reflecting higher than expected prices at the tail end of last month.
Figure 2: Actual average domestic consumer airfare prices through June 2015 (solid line), with six month forward forecast price levels (dashed).
Fares continued to increase in June as expected due to the fact that fares typically increase throughout the spring to account for increased demand. Last year, our index increased by 4.7% in May and 0.1% in June -- so while the specifics may be different, the overall pattern is the same.
Figure 3: Year over year change in average domestic airfare, through June 2015 (solid line), with six month forward forecast (dashed).
While the current increase is largely seasonal, it’s noteworthy that the typical fare has declined 7.1% from June 2014, when it was measured 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 this month, consumers have so far been enjoying better deals and can expect more of the same through the rest of the year.
In June, consumers were searching for flights a median of 33 days ahead, about the same as in May but still considerably higher than what we’ve historically observed at this time of the year. This puts the typical departure date in July or early August, the heart of the summer travel season. Last year at this time, the median search was only 23 days in advance.
Figure 4: Average advance purchase time between shopping for flights and booking. Higher values mean consumers are booking farther in advance.
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 May to June:
While these increases can be particularly dramatic, they mostly reflect routes with disproportionately large seasonal effects and routes that had previously been unusually cheap. Charlotte tops the list with a 9.5% price increase in June, putting prices this year 4.5% higher than in June 2014. Fares departing Charlotte have been trending upward over the last two years, as prices last June were 7% higher than in June 2013. The big increase this month, then, fits into the broader pattern of price growth.
Since overall price growth was modest in June, some airports actually experienced price decreases:
Like some of the price increases above, these changes mostly reflect recent pricing patterns for particular routes. Unlike in Charlotte, prices departing Miami have been trending downward over the last two years, a process that has accelerated since last summer. Prices this June are a whopping 24% cheaper than June 2014, while prices in June 2014 were 4% cheaper than in June 2013.
The map below shows the current price index for flights departing from each state, illustrating how prices can vary across the country:
Figure 5: 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 Massachusetts, Maryland, 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:
Figure 6: 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:
Figure 7: 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.
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 provides the cleanest aggregation of our price data, and we report it alongside the typical advance purchase date to give an idea of how these prices translate into date of travel.
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.
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.
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 fourth month we’ve published a forecast - allowing us to compare our current estimates to what we’ve predicted previously.
** 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 reported a 7.1% price increase in May, a 2.9% price increase in June, and a summer peak of $279, 6.1% lower than 2014. This month, we revised our index in May to an increase of 7.7% and observed a 1.3% increase in June, bringing prices to $276. Overall, these revisions are minor, with the upward revision in May perhaps accounting for the slower than expected price growth in June. The sign and acceleration of price growth in both months remains consistent with our predictions throughout the spring.
Since the June data was broadly consistent with our expectations, we have not revised our projection for 2015 substantially. Since this month’s peak was cheaper than anticipated, forecasted prices for the rest of the year have been similarly decreased - though the growth rates we anticipate have not changed.