Discounted Airfares. Do They Remain That Way?

At least for full-service U.S. airlines, the increase in pent-up demand that pushed up ticket prices last year seems to have given way to more regular seasonal demand this autumn. This is the case for both international and domestic travel. However, the issue of for how much longer airfare will be lower in comparison to the preceding 18 months remains open and quite unknown.

According to Katy Nastro, a travel specialist with the subscription service Going (previously known as Scott’s Cheap Flights), which notifies users about deals on flights, “it’s really hard to predict whether or not airfare is going to drastically rise or go down drastically,” “However, in comparison to 2022, I do not believe that we will see as dramatic upswings and downswings,” the author says.

According to a study conducted by the booking app Hopper, rates for budget airfares this autumn are 9% cheaper than they were this time last year and 10% lower than the prices for 2019 overall. Budget airfares are defined by Hopper as being costs that are lower than 90% of the flight quotations it analyzes.

And Hopper’s research revealed that the cheapest domestic flights are 14% less expensive over the Thanksgiving holiday and 12% less expensive during the Christmas holiday compared to the same time last year.

But according to ARC, which monitors ticket sales made via travel agents in the United States, airfare is getting closer to being on pace with what it was a year ago. The American Travel Research Company (ARC) reported that the total average price of domestic and international leisure airfares resolved for the week ending September 17 was $688 roundtrip. This is a 3% decrease compared to the same week last year.

The argument that took place among airline executives this month over the status of industry demand was put into perspective by the disparity in the data provided by ARC and the data provided by Hopper, which focuses on cheap prices. ARC’s data and Hopper’s data were at odds with one another.

Executives from Alaska, United, and Delta expressed confidence in their judgments at the Morgan Stanley Laguna Conference, which took place from September 12 to September 14. They said that recent decreases in fares are consistent with historical trends as the summer shoulder season gives way to the autumn shoulder season.

A rebalance toward domestic flying following this summer’s rise in transatlantic travel was reported by the Chief Financial Officer of Alaska Airlines, Shane Tackett, to the participants of a conference. Tackett said that the airline is seeing more demand that is consistent with the season than it did during the robust September of 2022.

However, he did mention that early September saw a decline in reservations for travel within a short distance.

Tackett was quoted as saying, “It is not at all concerning; however, it would have been nice to see the close-in demand persist.”

The president of Delta, Glen Hauenstein, had an even brighter outlook.

“People say, ‘When’s revenge travel going to be over?'” he said. “When’s revenge travel going to be over?” “In my opinion, there is still a long way to go. And I believe that it will continue to operate effectively for our client until the year 2024.”

Bulls vs. bears

But although full-service airlines continue to be optimistic, bargain carriers like Frontier and Spirit have provided pessimistic forecasts for passenger demand.

A abrupt decrease in demand was cited as the reason for Spirit’s decision to reduce the midpoint of its revenue projection for the third quarter by sixty million dollars earlier this month in a regulatory filing. In a similar vein, Frontier indicated that falling demand and rising fuel costs would lead to an operating loss of 4% to 7% for the September quarter. This is in contrast to Frontier’s earlier projection of an operating profit of 4% to 7% for the September quarter.

When asked about flying inside the United States, Frontier CEO Barry Biffle said, “There is an imbalance between capacity and demand.” Additionally, he forecasted that full-service carriers would soon follow suit and endure reductions in the industry.

“There is a slowdown, regardless of whether or not there is a slowdown. And it has repercussions for everything,” he said.

In response, Hauenstein and United CEO Mike Leskinen suggested that the rapid expansion of Frontier and Spirit may be the cause of their financial difficulties.

According to Ailevon Pacific, a consultancy company, Frontier Airlines is planning to fly 44% more passengers in October compared to October 2019, while Spirit Airlines has 41% more passengers planned to travel on its flights. While American, Alaska, and Delta all anticipate operating with a little less number of seats in November 2019 compared to October 2019, United is slated to operate with three percent more seats.

According to Hauenstein, “Perhaps they’re getting a little too far out in front of themselves by allowing demand to catch up.”

Growth is accompanied with difficulties.

Because the picture on flight demand is unclear, it is difficult to make accurate predictions about where pricing will track. According to Hopper, it is reasonable to predict that the costs of domestic tickets will stay low all the way to the end of the year. Next year, though, there is a possibility that rising gasoline costs would cause that tendency to reverse. According to the International Air Transport Association (IATA), the price of jet fuel in North America has increased by more than 11% this month in comparison with August, and early in September, United stated that the increase had been more than 20% since the middle of July.

According to George Ferguson, an aviation industry expert at Bloomberg Intelligence, increased capacity is expected to have a negative impact on the pricing power of airlines in the coming months. According to the findings of a Bloomberg Intelligence review of data provided by Cirium, United States airlines intend to fly a total of 2.5% more domestic seats in the current quarter than they did in 2019. According to the plans that are now in place, the gap between the two prices would widen to 10.3% during the first three months of 2024.

According to Tackett of Alaska Airlines, a growth rate of that magnitude would provide a difficult situation for airlines in terms of price.

If the current figure that everyone is talking about in terms of growth in 2024 really occurs and there is no upturn in the economy, it is going to be a difficult setting. He said this at the Morgan Stanley conference. “The math is pretty simple,” he remarked.

However, Tackett also said that he anticipates airlines to scale down their expansion ambitions before the year 2024 approaches, particularly if high fuel prices continue.