We forecast that domestic roundtrip airfare has peaked, rising 2.2% to $252 in June. This is in line with our projections, and down about 8% from last summer's peak.
Although jet fuel is nearly 50% above its recent floor, it is still cheaper than it's been since 2009. Although airfare has fallen since 2015, it does not appear to reflect the full potential savings from lower fuel prices.
Airfare is likely to fall about 15% into the fall, reaching a projected low of $215 in October.
Oil Price and Summer Bookings Driving Airfare Higher
Prices rose just over 2% for the typical round-trip domestic flight in June as summer demand peaked and oil prices continued their recovery. Prices are down about 8% from last summer's peak and 15% from two years ago.
Jet fuel has now recovered almost 50% from the low point of $0.93/gallon in January of this year, but is still inexpensive historically. Although airfare has been falling, the correlation between airfare and fuel prices has diverged somewhat since 2015, suggesting that airfare does not reflect all the potential savings due to lower fuel costs.
We're projecting that consumer airfare will fall about 15% as we move into the fall months, reaching a low of $215 in October. This would be similar to last October's prices, but about 15% lower than Oct 2014.
Figure 1: Actual average domestic consumer airfare prices through June 2016 (solid line), with six-month forward forecast price levels (dashed)
Figure 2: Jet fuel continued its upward trend, rising a further 6% in June, but remains well below levels of recent years. Airfare is still relatively inexpensive on a seasonal basis.
Figure 3: A longer range view shows that jet fuel is cheaper than it's been since 2009, but that airfare - although cheaper than in recent summers - does not reflect the full extent of the decline in fuel prices.
Table 1: Hopper's six-month forecast for consumer airfare, showing prices sliding through summer and bottoming out at about $216
These are the destinations that gained (and lost) the biggest search share on Hopper since last month.
Table 2: Domestic destinations with the biggest increase (left) and decrease (right) in search demand on Hopper since last month.
Table 3: International destinations with the biggest increase (left) and decrease (right) in search demand on Hopper since last month.
Destinations to Watch on Hopper in July
The Hopper app predicts future flight prices with 95% accuracy. If you select the "Watch This Trip" button, Hopper will constantly monitor prices and notify you the instant you should buy.
We calculated popular destinations for upcoming travel where you could save most by watching prices in Hopper. If you're interested in visiting any of these destinations in the next few months, we recommend setting your watch on Hopper now so that you can be alerted about price drops this month.
Table 4: Domestic destinations most likely to drop in price on Hopper in July
Table 5: International destinations most likely to drop in price on Hopper in July
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 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.
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.