Are soaring prices coming soon to the airline industry?
It seems hard to believe, with the Omicron COVID-19 variant putting airline travel in the doldrums and airline stocks in the toilet. The slower winter season, cancellations and delays (including possible 5G problems) doesn’t help.
To stimulate demand, domestic airlines like Avelo recently had a fare sale. TravelPirates is offering a round-trip to the far-off Seychelle Islands for just $688. But if you want a travel deal, you better act quickly, because higher fares are coming—fast.
According to price-booking mobile app Hopper, their new Consumer Airfare Index shows that domestic airfare will increase 7% monthly through June,.
Right now, according to Hopper, domestic airfares are low at an average of just $234 round-trip. International airfare (to places without COVID visitor bans) is at historic lows for January at an average $649 per round-trip.
But Hopper says big price increases are coming. The company forecasts an average 7% increase in domestic airfare each month until June (up to $315 per round-trip), with the highest increases in March.
Internationally, Hopper expects airfare to increase an average of 5% each month until June topping out at $830 per round-trip, up from $649. The most significant increases will take place between now and March as demand recovers following the Omicron wave.
Indeed, indications are that Omicron infections are starting to recede. Hopper says that falling COVID/Omicron rates will drive both demand and the price increases. “Our forecast significantly factors in price increases we saw in US airfare following the Delta Variant last fall,” says Adit Damodaran, Economist at Hopper.
Rising ticket prices are being driven by a number of factors. Hopper says these include the soaring cost of jet fuel as well as seasonal effects (like Valentine’s, Easter/Passover, spring break and end-of-school travel.) And of course, there is increasing demand from millions who have been locked down for months.
Another reason for price increases is the airlines’ drive to finally make a profit after two years of losses. Indeed, European carriers have been flying nearly empty to keep their airport slots. Could airlines actually start making money in 2022? “It’s hard to predict given overhead and unforeseen factors (like potential new variants), but we do expect to see airfare at 2019 levels by April which will get airlines closer to profitability,” says Damodara.
Right now the US State Department seems to be discouraging Americans from traveling, with a map of the world full of Level 4 warnings. But if COVID continues to decline (and a travel-killing new variant does not appear) another demand driver could be the reopening of countries like Australia, Japan, Israel, and Korea.
“We have observed that typically when restrictions are lifted from countries that are appealing to leisure travelers, there is a sudden increase in searches to those destinations,” says Hopper’s Damodara. “It’s hard for us to say when those restrictions will be lifted, but we’ve seen throughout the pandemic that the demand is there.”
With travel uncertainty from flight cancellations and ever-changing quarantine rules, Damodara says 43% of Hopper users are booking at least one of the company’s “flexible fare” products,” up from 33% before Omicron. He says, “On average, users are willing to spend 10% more on their booking to add this flexibility, which works out to about $40 on average.”
Flex travel services from Hopper include Change for Any Reason, Cancel for Any Reason, and Flight Disruption Guarantee (Delay Rebooking Service & Missed Connection Rebooking Service). Prices vary by traveler and trip, but Hopper provided some average prices per product.
Delay Rebooking Service: $24
Missed Connection Rebooking Service: $43
Cancel for Any Reason: $50
Change for Any Reason: $35
Where do people want to go? Hopper says the top domestic destinations are Orlando, FL, Las Vegas, NV, and Miami, FL. London, UK, Cancun, Mexico, and Paris, France are the most popular searches for international flights. By contrast, Hawaii, which now may require booster shots for tourists to skip quarantine, was Hopper’s 13th most searched destination for winter 2022.
“Across the board, between the impacts of the variant and the time of year, prices are low and are just expected to go up,” another Hopper spokesperson added. But considering the pandemic, “We recommend that people book with the flexible options, as we’ve seen things can always change.”