Analysts say low airfares are likely to stick around awhile,
a trend that could spell good news for travel sellers, according to industry
leaders, even if it means a slight hit on ticket-sales overrides.
“The thing to think about is that when people are purchasing
an airline ticket, they’re also purchasing hotels, cruises,” said Brian Chapin,
who overseas airline supplier relationships for Ensemble Travel Group. “The
lower airfares could be a stimulus.”
Airfares fell 5.6% from June through July, according to the
U.S. Labor Department’s Consumer Price Index, the largest month-to-month drop
in fares since December 1995.
Meanwhile, passenger yield, which is the average per-mile
price of airfares, is down 2.2% year-to-date on domestic flights, according to
the trade group Airlines for America (A4A). On international flights, passenger
yield is down 6.3%.
Montreal-based Hopper, which tracks GDS searches in order to
analyze airfare prices and demand, predicted that ticket costs will stay low
through the fall, with the average round-trip domestic fare through November
tagged at $249, which is 2.8% less than last fall.
George Hobica, founder and president of the
Airfarewatchdog.com website, said he expected the price dip to continue well
beyond the fall.
“I think we are going to see single-digit decreases over the
next two years,” he said.
Hobica cited low fuel prices, increasing competition from
low-cost domestic and international carriers and international financial
instability as reasons for his forecast.
Data lend credence to Hobica’s prediction. The cost of jet
fuel on July 31 was down 47% from a year earlier, according to IATA. But even
if the price of crude, which is currently around $40 per barrel, doesn’t
continue to dip, some major U.S. airlines still expect to see significant
decreases in their fuel overheads in the coming months as their hedged
Delta, in particular, is set to benefit. Nearly $600 million
in settled hedge losses during the first half of the year factored into the
Atlanta-based carrier’s fuel expense of $2.65 per gallon. But in its July
quarterly earnings report, Delta said it expects fuel expenses for the
remainder of the year to be just $1.90 to $2 per gallon.
United, too, is predicting its fuel costs to drop further in
the coming months. The company forecasted that costs this quarter will be
around $2 per gallon, down from $2.15 during the first half of the year.
Not all major U.S. airlines are in the same position.
Southwest told analysts it expects its fuel costs, hedge settlements included,
to increase from $2.02 per gallon during the spring months to $2.20 this
quarter. And like the other major airline carriers, Southwest must still deal
with cost-cutting pressures from the burgeoning discount airlines.
Spirit, for example, saw a 30% jump in available seat miles
from June 30 of last year to June 30 of this year. The jump was 17% for
Allegiant and 7.5% for JetBlue. Those figures compare quite favorably with
increases of 3% or less at Delta, American and United. Available seat miles for
Southwest increased 7% from June 2014 to
International pricing pressure
Domestic low-cost carriers aren’t alone in putting downward
airfare pressure on major carriers. Norwegian Air, which operates out of six
U.S. airports, more than doubled the number of passengers on its long-haul
routes over the 12 months that ended in June.
Meanwhile, Iceland-based discount carrier Wow entered in the
U.S. market this year with flights from Boston and Baltimore.
The growing low-cost sector is offering some exceptionally
inexpensive deals at the moment. Last week, for example, Wow was offering $207
one-way fares from Boston to Paris, while Frontier was offering various $15
domestic one-way fares to members of its Discount Den club, for which it
charges $50 annually.
“You can hopscotch around the country between now and Dec.
14 for $40,” said Hobica, who said that Frontier, Spirit and even Southwest are
duking it out.
So far, said Kathryn Mazza-Burney, executive vice president
of sales for the Travelsavers consortium, agents in the network have yet to
notice an impact from lower fares. But she said that if prices drop enough, it
would likely boost agents’ bottom lines, even if they see a commission drop for
each plane ticket sold.
“If [clients] are spending less on airfare, they’re more
likely to spend more on land packages and cruises, which are higher-yielding
revenue for agents,” Mazza-Burney said. “It’s creating higher commissions.”
Another benefit to dropping airfares, said Travel Leaders
Franchise Group President Roger Block, is that it induces more people to
“For the leisure agency, there is absolutely no negative
impact to cheaper fares,” he said.
Even so, instability in world financial markets threatens to
dampen the travel boost that low airfares would typically produce. China’s
decision to devalue the yuan in mid-August led to sharp declines in stock
markets around the globe. And while such declines could potentially be erased
in many countries over the coming weeks or months, the China slowdown, coupled
with the perceptions of nervous investors, could still take their toll on
travel consumers, Hobica said.
“When investments are flying high, people feel richer and
are more likely to spend; and the reverse is true as well,” he said.
Mazza-Burney, however, said she did not think people would
be deterred by the financial news.
“Instability in the world is never a good thing, and it
always makes people think twice,” she said. “But I think honestly that travel
has become more of a lifestyle than a luxury, and people are going to travel.”