Quarterly Travel Recovery Index - Part II: Airfare Pricing Forecast

With COVID continuing to depress travel demand and the vaccine in its early stages of roll-out, we expect airfare prices to remain low and begin to gradually increase in the spring.

Adit Damodaran - Jan. 25, 2021

Summary: What to expect for 2021 airfare prices?

Domestic airfare 

  • With COVID continuing to depress travel demand and the vaccine in its early stages of roll-out, we expect domestic prices to remain low for the first 3 months of 2021. 

  • Vaccine roll-out is expected to contribute to rising domestic travel demand around March 2021, when it becomes available to the general public. 

  • Domestic airfare prices are expected to be 20% lower in Q1 and 12% lower in Q2 compared to 2019 prices; averaging about 10% down over the course of 2021 compared to 2019.

  • Prices for domestic travel are expected to rise in mid-to-late March and gradually return to 2019 levels over the course of the year - with the strongest increase in late spring/summer, once the vaccine is more widespread.

International airfare 

  • With international travel projected to rebound slower than domestic, we expect international prices will remain depressed for the first 5 months of the year and then to rise (more rapidly than domestic prices) beginning in May, returning back towards 2019 levels.

  • International airfare is expected to be 12% lower in Q1 and 10% lower in Q2 compared to 2019 prices; an average of 5% lower over the course of the year compared to 2019.

  • Prices for international travel are expected to rise by mid-May. 

When to book spring/summer travel?

  • Domestic travelers looking to plan spring travel should book in the next 2-3 weeks (with added flexible booking options) and no later than the end of February to get the best deals. Those looking to plan a trip for summer 2021 should begin to monitor prices now, but we recommend waiting to book until mid-April/early May in order to get the best deals.

  • International travelers looking to book a trip for spring 2021 should do so no later than the end of February to get the best deals and flexible booking options. However, for those looking to take an international trip this summer, we recommend waiting to book until later in the spring, between Apr. 30th - May 15th to find good airfare deals.

Domestic Airfare Trends in the COVID-19 Era

Domestic consumer airfare prices currently remain significantly lower than prior year levels. Between 2017 and 2019, airfare dropped an average of 6% from the prior year. Amidst the COVID-19 pandemic, airfare has fallen to record lows and experienced relatively larger swings. In 2020, the good-deal price on round-trip domestic airfare was $220, which was 25% lower than in 2019. 

In the wake of the COVID-19 pandemic in spring 2020, roundtrip airfare dropped around $60 with lower travel demand. 

Domestic Good Deal

Similar to past years, we saw price increase into the summer, fall during the autumn shoulder season, and rise again into the holidays. 

Domestic Airfare to Steadily Rise into Summer 2021 

Several different factors will push airfare steadily higher into Summer 2021. Domestic airfare prices tend to increase steadily from January to July, with stronger demand for travel in the summer months driving higher prices. 

As the COVID-19 vaccine becomes more widely available in the U.S. throughout Spring 2021, we anticipate demand to grow at an even quicker clip throughout the spring and into the summer compared to prior years. Additionally, jet fuel prices have been steadily on the rise since the last quarter of 2020. With jet fuel prices averaging $1.35/gal in the last week of 2020, rising jet fuel prices may also contribute to higher airfare in the coming months.

Factors Moderately Countering the Rise in Airfare

With returning travel demand, we expect to see low cost carriers gradually add back capacity. Airlines will focus on returning parked jets to the skies by increasing capacity and seat-occupancy. This will moderately counteract the drivers pushing airfare higher. 

Domestic Airfare Six Month Forecast

We expect domestic prices to remain depressed for the first 3 months of 2021 but then to gradually return to 2019 levels over the course of the year, with the strongest growth in the late spring/summer. In 2020 domestic prices were 25% lower on average than in 2019. This year, we're projecting 20% lower prices in Q1 and 12% lower in Q2 compared to 2019; averaging about 10% lower than 2019 over the course of the year.

2021 good deal

We expect domestic good deal airfare prices to rise ~6% on average each month following March before leveling off around June. 

Six Month Pricing Table

International Airfare Trends in the COVID-19 Era

International consumer airfare prices for flights departing from the U.S. also remain significantly lower than prior year levels. Similar to drops in domestic airfare, this can also be primarily attributed to lower demand for international air travel from the U.S. 

Unlike domestic airfare, international demand in 2020 began falling even earlier than March, closer to mid-February. It served as a leading indicator of Covid-19’s detrimental impact on travel, and could serve as a leading indicator of the vaccine’s impact on travel demand recovery in 2021. In 2020, the average good-deal price on round-trip international airfare was $735, which was 14% lower than 2019’s average of $856. 

Whereas Mexico and the Caribbean usually lead international travel from the U.S. during the holiday season, lower demand in 2020 resulted in lower airfare. Consequently, round-trip airfare remained abnormally steady between November and December. 

International

Nonstop flights to China were a significant outlier for round-trip international airfare prices in November, as Delta Airlines resumed the only nonstop service to China among U.S. carriers. As a result, they were excluded from the analysis.

International Airfare Prices Expected to Increase in May/June 2021

International airfare has been relatively stable heading into 2021 with U.S. travelers favoring short-haul trips to Mexico and the Caribbean, two regions that have both seen cheaper airfare throughout the last quarter of 2020. 

In tandem with domestic airfare, international flight prices tend to increase steadily from January to July, with stronger demand for travel in the summer months driving higher prices. This year we’re forecasting the trend up to be more gradual in the early months, with more rapid increases towards May and June 2021. This is due to current demand levels favoring shorter haul flights to Mexico and the Caribbean over more expensive long-haul flights to Europe and Asia. We predict that demand will shift back towards longer haul flights upon wider vaccine distribution in the U.S., which we forecast will have an effect on prices around May 2021. Finally, jet fuel prices have been steadily on the rise since the last quarter of 2020. With jet fuel prices averaging $1.35/gal in the last week of 2020, rising jet fuel prices may also contribute to higher airfare in the coming months.

International Airfare Six Month Forecast

For international travel, we expect airfare prices to remain depressed for the first 5 months, and then to (more strongly than domestic) rise from May back towards 2019 levels. In 2020, international prices were 14% lower on average than in 2019. This year, those will be closer to 12% down in Q1 and 10% down in Q2 compared to 2019; averaging around 5% down over the course of the year.

2021 international

We predict international good deal airfare prices to rise gradually at ~3-4% on average each month until April, and then climb more rapidly by ~6% until July before falling into the fall shoulder season. 

International Pricing Table

Jet Fuel Prices

The Average Price of Jet Fuel in 2020 was $1.09/gal, down 41% from 2019’s average price of $1.88/gal. Jet fuel prices bottomed out in late April at $0.41/gal and have since risen to average around $1.12/gal in the last quarter of 2020. 

Jet Fuel

Analysis: How will the vaccine timeline and travel demand impact airfare pricing?

Short Term Impact

In the wake of the COVID-19 pandemic in spring 2020, round-trip airfare dropped from forecasted levels around $60 in the following months due to lower travel demand. With COVID continuing to depress travel demand and the vaccine in its early stages of roll-out, we expect domestic prices to remain low for the first 3 months of 2021. Domestic airfare prices are expected to be 20% lower in Q1 and 12% lower in Q2 compared to 2019 prices; averaging about 10% down over the course of 2021 compared to 2019.

We anticipate the vaccine rollout to contribute to rising domestic travel demand beginning around March 2021, when it becomes available to the general public. 

*Assuming a March rollout of the vaccine to the general public, we forecast airfare prices to increase ~$25 by mid-April on top of a normal $10 increase forecast seasonally for these months. Whereas airfare tends to rise around 2-3% monthly between March and May in a typical year, we anticipate the rise in price to be closer to ~6% on average this year with the vaccine rollout. 

Prices for domestic travel are expected to rise in mid-to-late March and gradually return to 2019 levels over the course of the year - with the strongest increase in late spring/summer, once the vaccine is more widespread.

***Delays to vaccine distribution would correspondingly delay these forecasted increases in airfare/demand. 

Long Term Impact

There are two theories about how travel might return with widely available Covid-19 vaccines: pent up leisure travel demand resulting in a more dramatic rebound or alternatively a more gradual recovery throughout the year. 

The real answer is likely somewhere in the middle. As shown above, we might see that pent up demand really prove itself in July 2021, which in the past month grew the quickest in search interest. Summer 2021 travel would then see a more marked rise in airfare closer to the $280-$285 levels for domestic flights. Regardless, we might anticipate gradually rising demand throughout the year to result in a shallower drop in prices during the fall shoulder season and a strong holiday season.

Will airlines adjust prices once demand increases? 

Given that a number of their planes are parked in temporary storage, airlines’ incentives will be to first increase their current seat-occupancy and then to subsequently increase their operational aircraft out of their total fleet. We can also look at China to observe how this might play out, where carriers released “all-you-can-fly” type passes for a one-time price. This suggests airlines will first look to reinstill confidence and demand in their routes. In the American market, we’ll probably first see airlines rolling back added flexibility offerings (such as changing your flight for any reason), but we aren’t likely to see prices compensate for last year’s losses in the near term. While we still forecast prices to increase with returning travel demand, we aren’t likely to see it “overadjust” for the losses incurred until perhaps 2022 (upon much steadier, and higher travel demand). 

When to book future travel based on pricing forecast?

For upcoming international and domestic travel, Hopper recommends booking in the upcoming 2-3 weeks (with flexible booking options) for flights departing before the end of March. For travelers looking for summer fares, they’re likely to find better deals in the spring. 

Prices for domestic travel are expected to rise in mid-to-late March, so those planning spring break travel should aim to do so by the end of February. Travelers looking for summer travel are likely to find great deals if they book sometime between Apr. 15th - May 15th. We recommend those planning to travel this summer to start monitoring prices now  and book in the spring.

Prices for international travel are expected to rise closer to mid-May. Those looking to book international tickets for the spring should do so by the end of February. For travelers looking to book summer trips should plan to wait and buy closer to Apr. 30th - May 15th to find the best deals.

Methodology

Our 2021 Airfare Forecast is based on three years of historical airfare data dating back to 2017. We used 2017-2019 data to model a “pre-pandemic baseline” airfare prediction for 2020, which takes into account seasonal variations in airfare. We then adjusted the model to account for the COVID-19 pandemic’s impact on air travel to establish a new lower “post-pandemic baseline”. Using this new baseline, we used the model to forecast prices into 2021, taking into account how search demand varied with airfare in the latter half of 2020. Our forecast incorporates anticipated gradual increases in travel demand according to estimated distribution timelines of the COVID-19 vaccine from various U.S. states and countries.

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