Yahoo Finance Will Airline Tickets Become Costlier in 2016?
How Did the US Airline Industry Perform in 1Q16?
2015: Cheapest year for airline tickets
In 2015, airline tickets reached their lowest point since 2010. Airline tickets around the world fell by about 5% during the year as travelers and airlines reaped the benefits of low oil prices.
Another reason for the fall in airfares could be the industry’s overcapacity concern. According to the Bureau of Transportation Statistics, the average airfares in the last quarter stood at $363, an 8.3% dip from the average $396 ticket price.
2016: Airfares on the rise
Oil prices have continued to remain low in 1Q16, but airlines have instead increased their airfares, reversing the trend we saw in 2015. All the major airlines have hiked their airfares three times so far this year after Delta Air Lines (DAL) initiated the move by adding $3 to a one-way fare.
To add to their passengers’ concerns, three major airlines—American Airlines (AAL), Delta Air Lines and United Airlines (UAL)—have recently changed their pricing for multi-city tickets. This change should result in pricier airline tickets that have one or more stopovers when booked online as a single ticket.
However, on April 26, 2016, Southwest Airlines (LUV) dropped its airfares by $10 on a round-trip ticket when purchased at least seven days in advance. Many airlines followed suit, especially on routes where they compete with Southwest. Historically, it’s uncommon to see a reduction in airfares at a time when travel demand is high and the industry seems to be following a capacity discipline.
In a surprising contrast, Delta Air Lines added $5 to airfares for one-way tickets purchased at the last minute. According to Rick Seaney, CEO of FareCompare.com, “Airlines tend to go in lockstep with airfares.”
What can we expect?
Airlines will have to eventually pass on some of their fuel cost savings to their passengers in the form of lower fares. If the current oil price situation continues, we could see some reduction in airfares. However, if oil prices turn around, passengers may have to face higher airfares as airlines hike fares to maintain their profitability.
Investors can gain coverage to airline stocks by investing in the SPDR Transportation Series Trust ETF (XTN).
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