October Inflation Report: Inflation Moderates as Economy Cools
Airfares to many popular destinations have recently fallen to their lowest levels in months, and even holiday travel is much cheaper than last year, providing welcome relief to consumers who have been frustrated for months by high prices for a variety of goods and services.
The glut of deals suggests that the airline industry’s rapid pandemic recovery may finally be slowing as ticket supply picks up and on some routes exceeds demand, which appears relatively robust.
Consider the rates that Denise Diorio, a retired teacher in Tampa, Florida, recently scored. She spent less than $40 on flights to and from Chicago and paid just $230 for a round-trip ticket from New York to Paris and back, a trip she plans to make this month.
“I told all my friends, ‘If you want to go somewhere, get your tickets now,’” she said.
The bargains she has found may be exceptional, but Ms. Diorio is right when she says there are a lot of deals out there.
At the beginning of this month, the average price for a domestic flight around Thanksgiving was about 9 percent lower than a year ago. And flights around Christmas were about 18 percent cheaper, according to Hopper, a booking and price tracking app. Kayak, the travel search engine, looked at a broader range of dates around the holidays and found that domestic flight prices fell about 18 percent around Thanksgiving and 23 percent around Christmas.
“In many cases, we’re seeing some of the lowest rates we’ve ever seen since travel returned after the 2020 drop-off,” said Kyle Potter, editor-in-chief of Thrifty Traveler, a travel blog and deal-watching service.
Domestic ticket prices have fallen this summer, Mr. Potter said, and deals on international travel, especially to Europe, have become more common recently.
Airlines are cutting fares as they try to get more people to book tickets as demand decreases or they face stiffer competition. There is little doubt that competition has increased on some routes, but travel experts say it is not clear whether demand is waning.
Thanksgiving is expected to set a record for air travel this year, with nearly 30 million passengers expected, according to industry group Airlines for America. That would be about 9 percent more than last year and 6 percent more than in 2019, before the pandemic.
But some airlines say demand drops outside holiday and other peak periods. In addition, some airports are so swamped with flights that airlines are forced to cut fares to fill planes.
That hadn’t been a major problem during most of the post-pandemic recovery. Weather and other disruptions limited the supply of flights last year and in 2021, as well as shortages of trained pilots, parts and aircraft, among other things. That drove up ticket prices, kept planes full and helped airlines make solid profits.
“The airline industry has never delivered the kind of profit margins and returns on capital that it has delivered over the past 2.5 years,” said John Grant, principal analyst at OAG, an aviation consulting and data company. “We are returning to a more normal industry.”
The good times have continued for the largest U.S. airlines, fueled largely by booming demand for international travel. But smaller and low-cost airlines are starting to suffer. Several companies reported disappointing financial results for the three months ending in September. Executives at these airlines have said demand is weakening, fares are falling and costs remain high. They also say bad weather and a shortage of air traffic controllers have made flying more difficult.
For example, JetBlue Airways lost $153 million in the third quarter, compared to a profit of $57 million in the same period last year. The company recently said it was moving flights from busy markets, such as New York, to markets where it expected stronger performance, such as the Caribbean. Budget airlines Spirit Airlines and Frontier Airlines recently told investors they wanted to cut costs by tens of millions of dollars.
Competition has been fierce in a number of key markets, causing rates and profits to fall.
In Denver, where Frontier is based, there were about 14 percent more seats available on flights this summer than in summer 2019, according to Cirium, an aviation data provider. In Miami and Orlando, Florida, two popular destinations served by many budget airlines, capacity was even higher.
But while airlines added flights in popular markets as they chased passengers, airports in other cities, including Los Angeles, a hub for several major airlines, saw major drops in capacity starting in the summer of 2019.
“You’ll find there’s a big correlation between the airlines that are doing well and the airlines that are struggling in terms of margins, if you compare where their concentrations are,” Frontier CEO Barry Biffle said at a conference last month. call to discuss the airline’s third quarter results.
When it comes to international routes, analysts are less sure why fares are falling and whether they will remain low. The kind of deals Ms Diorio got for her trip to Paris could mean bigger airlines will soon face financial pressure, or just the industry returning to pre-pandemic normal levels.
“Historically, demand for Europe declines in the winter,” said Steve Hafner, general manager of Kayak. “So I think this reflects normal trends.”
But demand for international travel may face challenges, partly due to the wars in the Middle East and Ukraine. Analysts also warn that many consumers may be less willing or able to spend money on travel than in recent years, when they had access to pandemic savings. Even if demand remains high, airlines risk offering too many seats on popular overseas routes.
Whatever the cause of the recent price drop, the deals are a welcome change for travelers after years of high prices, Mr Potter said.
“Either way, the recipe for cheap flights is there,” he said. “If there is just a little bit of overcapacity, that is a win for the consumer. If demand for travel falls, in some ways it will be an even bigger win for people who will never give up travel.”