Budget leisure airfares will keep climbing, Hopper predicts – Travel Weekly

Budget leisure airfares are on the rise and will climb to within 2% of 2019 prices by August, according to a recent forecast by the booking and price-predicting app Hopper.

And airlines themselves are also reporting escalating airfares, especially on leisure routes.

According to an analysis by Hopper economist Adit Damodaran, domestic budget airfares climbed 18% in March, to an average round-trip cost of $249. (The app defines budget fares as those that are lower than 90% of the fare quotes it tracks.)

A portion of that increase is related to normal seasonal trends as travelers began booking in earnest for summer vacations. But the jump was fueled this year by the surge in travel demand that has accompanied the quick U.S. ramp-up of Covid-19 vaccinations, Damodaran said.

By May, Hopper projects, budget domestic ticket prices will average $279, which would be 23% higher than May 2020 but 10% less than May 2019. Prices between June and August will average $283, according to the forecast, with the average August price of $276 a robust 44% higher than last year.

Hopper predicts that by October budget airfares will be 4% higher than they were in 2019.

Typically, Damodaran said, midrange ticket prices track in a pattern similar to budget fares.

However, with business travel still steeply depressed, premium ticket prices could continue to languish, Southwest chief commercial officer Andrew Watterson suggested during the carrier’s earnings call in late April.

Overall, fares at Southwest were down 20% year over year during the first quarter. But the carrier also saw its load factor increase 20 percentage points between January and March, a key step toward being able to charge more for tickets. The carrier said fares went up in March, and it expects increases to continue in April and May alongside rising passenger numbers.

Nevertheless, with corporate demand at Southwest still down 85% from pre-pandemic levels in March, higher-end fare products such as Business Select might not follow the same trajectory. As a result, Watterson said, fares overall at Southwest will remain down on a year-over-year and year-over-two-year basis.

During its late-April earnings call, American offered a more specific look at the leap in ticket prices as the first quarter progressed.

At the beginning of the quarter, fares were roughly half what they had been a year earlier, chief revenue officer Vasu Raja said. But heading into summer, fares have increased to roughly 90% of 2019 levels.

The numbers are even better for the airline in leisure markets such as Las Vegas, Florida and Mexico, where American is achieving yields of 95% to 100% of 2019 levels, Raja added. (Airlines define yield as their average revenue per passenger mile flown.)

Hopper saw a similar trend play out across the industry, according to Damodaran, with the earliest price increases coming on flights to outdoor destinations and gateways such as Honolulu; Phoenix; Jackson Hole, Wyo.; and Bozeman, Mont.

He said that various factors could still flatten price increases below Hopper’s forecast, including a surge of inventory being added by established airlines as well as planned summer launches by discount carriers Breeze and Avelo.

Existing discount carriers Spirit, Frontier, Allegiant and Sun Country could also undercut the market, forcing full-service carriers to follow.

“It’s definitely a possibility,” Damodaran said.

Indeed, Southwest CEO Gary Kelly gave a bearish prognostication about airfares in late April, noting depressed business travel and saying that the U.S. airline industry still has more seats than it does passengers.

“What we’ll be prepared for is a very low-fare environment for a long time,” Kelly said.