Hopper’s Consumer Airfare Index projected to fall to $244 by December with flights 5% cheaper than in 2014

Patrick Surry - Jan. 31, 2016

Summary

  • We predict domestic airfare will average $250 this fall, 2.6% lower than last year’s levels

  • For the rest of this year (August through November), prices will average about $249, or 2.8% cheaper than in 2014 and 6.8% cheaper than in 2013

  • Overall typical domestic airfare for Labor Day weekend is currently about $310 round-trip - down about 14% from prices at the same time last year

  • Since releasing our first forecasts in April, Hopper has consistently predicted the next month’s domestic airfare trend within a single percentage point, an error of less than $5.

Forecasting 2015

Looking forward to the rest of 2015, Hopper anticipates its Consumer Airfare Index will continue to decline through the rest of the summer and then stabilize through the fall and early winter.

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Figure 1:  Actual average domestic consumer airfare prices through July 2015 (solid line), with five month forward forecast price levels (dashed), comparing current 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 and early winter. Since this summer was cheaper than last summer, we expect prices to remain lower than last year through the rest of this year, returning slightly closer to normal by the end of the year.

For the rest of this year (August through November) prices will average about $249, or 2.8% cheaper than in 2014 and 6.8% cheaper than in 2013.

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Labor Day Forecast

Overall typical domestic airfare for Labor Day weekend is currently about $310 round-trip. That’s down about 14% from prices at the same time last year, reflecting overall domestic price declines that we’ve observed.

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Most Popular Labor Day Destinations

Tracking Domestic Airfare in July

Looking back, prices decreased by 5.2% from June to July as summer vacation travel purchasing wraps up. This puts the average price of a round-trip domestic flight at $262. Screen Shot 2015-08-04 at 1.33.57 PM

Figure 2: Actual average domestic consumer airfare prices through July 2015 (solid line), with five month forward forecast price levels (dashed).

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Figure 3:  Year over year change in average domestic airfare, through July 2015 (solid line), with five month forward forecast (dashed).

While the current price decrease is mainly seasonal, it’s noteworthy that the typical fare is still 3.9% below July 2014, when it was  measured at $272. Prices this year are still well below last year’s levels, and we expect consumers to continue to find better deals through the rest of the year.

In July, consumers were searching for flights a median of 32 days ahead, about the same as in June but still considerably higher than what we’ve historically observed at this time of the year. This puts the typical departure date in August or early September, the tail end of the summer travel season. Last year at this time, the median search was only 23 days in advance.

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Figure 4:  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.  Although prices broadly declined, a few airports saw price increases (or particularly small decreases).  Here are the top airports which saw the biggest average increases (or smallest decreases) in price of departing domestic flights from June to July:

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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. Prices departing Pittsburgh went against the national trend and increased by 5.7%. Looking closer at individual destinations, this increase was driven in large part by big price increases to Atlanta, Tampa, and Boston - which together comprise about 18% of traffic departing Pittsburgh.

Some airports also saw larger than average price declines:

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Like some of the price increases above, these changes mostly reflect recent pricing patterns for particular routes. Prices departing Dallas decreased by 11.6%, in part because of particularly pronounced seasonality but also because prices have been trending down over the last few years - 11.5% cheaper than July 2014 and 22.3% cheaper than in July 2013.

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 5:  Average domestic airfare for flights originating in each state.

The more sparsely-populated states with fewer airports have higher prices. Wyoming and North Dakota 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 decreases llast month. Here are the biggest winners and losers, compared to the nationwide price decreases:

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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:

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Figure 7:  Average airfare for flights arriving in each state, the opposite of Figure 5. The pattern here is similar: it’s more expensive to get to more remote states with smaller and fewer airports. 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

Methodology Detail

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.

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.  

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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 fifth month we’ve published a forecast - allowing us to track our current estimates against what we’ve predicted previously.

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

The observed airfare index continues to track closely to our forecast, with errors remaining within a $5 or 1% band.

Month Price (Observed) Price (June Index and Forecast) Revision/Error
June 2015 $276 $279 -$3
July 2015 $262 $259 $3

Since the July data was broadly consistent with our expectations, we have not revised our projection for 2015 substantially. Since this month’s pricing was slightly higher than anticipated, forecasted prices for the rest of the year have been modestly increased - though the growth rates we anticipate have not changed.

Month July ForecastPrice June ForecastPrice Forecast Revision
July 2015 $262 (actual) $259 $3
August 2015 $247 $245 $2
September 2015 $252 $250 $2
October 2015 $248 $245 $3
November 2015 $252 $250 $2
December 2015 $244 $241 $3
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