Airfare is about to get much more expensive, experts say. Here's what you need to know
Prices all across the broader economy are in flux right now, with supply chain issues, inflation, and wildly vacillating stock markets leading to higher costs on everything from groceries to cars.
One area where prices haven't been as affected: airfare. In fact, the average cost of airline tickets, which tend to be relatively variable by nature, have been fairly stable.
But that may be about to change.
According to data compiled by travel booking site Hopper, domestic airfare is projected to increase by as much as 7% monthly through June, reaching — and passing — 2019 levels by April.
International airfare, meanwhile, is expected to rise an average of 5% per month.
"If you are planning spring break travel, you should be tracking prices and book soon," Hopper economist Adit Damodaran, who compiled the report, told TPG in an emailed statement. "Spring prices will only get higher in coming weeks as the Omicron wave ends. In short, the best deals for spring break trips are out there right now. For summer travel, travelers should also be monitoring with price tracking tools like Hopper, but there is more time before you need to book."
Some of the increase can be attributed to normal seasonality, with demand typically falling in January following the holidays, only to increase leading up to the busy summer travel season.
This year, however, demand fell even further than normal because of the omicron variant, while a steep demand recovery in the coming months will contribute to higher fares, according to Hopper's Consumer Airfare Index report.
The slump in demand, meanwhile, hasn't stopped prices from climbing. For the week ending Jan. 17, published fares were up 9.7% over the same week a year previously, while demand was down 27%, according to data from Helane Becker, airline analyst at Cowen, in a research note published Jan. 23.
Additionally, surging jet fuel prices will likely contribute to higher airfare — prices increased 60% through 2021, according to Hopper. As jet fuel prices have risen in the past, consumer airfare prices have typically increased as well. Fuel represents roughly 30% of airlines' operating expenses, according to Cowen airline analyst Helane Becker, but can be a larger percentage as prices rise.
Fuel prices typically have an impact on airfares, which, while potentially positive for airlines' bottom lines, means higher costs for consumers.
"We continue to believe higher fuel costs are a medium- to long-term positive for North American airlines given the result typically reduces supply and boosts ticket prices, which we believe positively influences earnings multiples – though again, clarity in this regard is more likely after the new year, in our view," JPMorgan airline analyst Jamie Baker wrote in a Jan. 17 research note.
Broader inflation throughout the economy could also have an impact. A 7% inflation rate over the past year, the highest since 1982, has sent consumer prices higher.
While it's tempting to point to the overall consumer price index as a driver of higher airfares, a direct comparison can be murky, American Airlines chief revenue office Vasu Raja said on the airline's earnings call last week.
"This industry has a long history with inflation where it hasn't always bled so cleanly into fares," Raja said. "But it's early to tell and how — whether this level of inflation stays or not, it's even early to go and guess at that, too."
Notably, the pricing increase is expected to occur most significantly as the current wave of omicron variant-driven cases begins to recede, Damodaran told TPG.
"From an industry perspective, we are in a pattern where during a COVID variant we have suppressed demand, but once it wanes we see pent up demand take off," Damodaran said. "While we once viewed travel bookings as starkly either pandemic or post-pandemic, we are now seeing that bookings follow the waves of the variants. There are times where consumer confidence is high and consumers are eager to book, and other times where they are more hesitant."
"Typically, over the past two years, this swing is part of a 2 to 3 month interval," he added.
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