Price Forecast: Domestic Air Travel

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  • Tags : Travel & Fleet | Domestic Air Travel | Price trend | Price forecast | Procurement research | Category market forecast

Recent Price Trend - Domestic Air Travel


During the three years to 2017, domestic airfares have been falling at an estimated annualized rate of 2.8%. The primary factor contributing to price declines has been airlines’ falling fuel costs. During the period, the world price of crude oil, which drives the price of aviation fuel, has been plummeting, reducing supplier purchase costs significantly. Airlines have therefore been able to pass some of their cost savings by lowering ticket prices while still maintaining high profit margins, to buyers’ benefit.

Additionally, despite some collaboration and consolidation among major airlines, increasing competition among suppliers, especially from low-cost carriers, has pressured market prices down. Low-cost carriers, which tend to strip flights of amenities in order to offer the lowest possible prices, have been encroaching on the market share of the major legacy airlines, forcing them to price match on many air travel routes. Additionally, many airlines have expanded their domestic travel routes, increasing competition over these routes and preventing airlines from boosting their prices without losing business.

However, demand for domestic air travel has been increasing overall, limiting the extent to which airlines have reduced their fares. The number of domestic trips by US residents has been increasing quickly, and per capita disposable income has also been rising, giving consumers more money to spend on discretionary purchases, including travel. Although corporate profit has not increased during the past three years, growth in demand for domestic air travel has mitigated the market’s price declines, detracting from buyer power slightly.

Unfortunately for buyers, airfare prices have displayed significant volatility during the past three years, mainly due to fluctuations in fuel costs. High price volatility detracts from buyer power somewhat by making fares harder to budget for. Moreover, airlines’ significant pricing power means that nearly all buyers are subject to the rate changes that airlines impose.

 



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