Could Airfares Continue to Fall in 2017?



Airfares in 2016

Due to heavy price discounts by airlines, airfares fell ~5% YoY (year-over-year) in 2015. According to the latest data from the U.S. Department of Transportation, average domestic airfares continued to fall in 2016. According to the report, 4Q16 airfares fell 6.1% YoY to $347, compared with $369 in 4Q15. Airfares fell 8.8% in 3Q16 to $344 from $377 in 3Q15, and 9.6% YoY in 2Q16 to $353 from $390 in 2Q15. They fell 7.8% YoY in 1Q16 to $361 from $392 in 1Q15.

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In fiscal 2016, inflation-adjusted fares averaged at $349, a fall of 8.5% from the average price of $382, the lowest fare seen since 2009. The 2016 average fare is 26.1% lower than the 2000 fare of $472, and 10.9% lower than 2014 fare of $392. It is, however, 12.5% higher than the post-recession price of $310.

Airfares in 2017

According to data released by the Bureau of Transportation Statistics, airfares have continued to fall in 2017. Airfares fell 2.9% YoY in May 2017. However, on a month-over-month basis, airfares increased from December 2016. In May 2017, airfares rose 2.2% YoY.

What can we expect for the rest of the year?

As we’ve discussed previously in this series, airlines are now focused on improving their unit revenue. Therefore, the likelihood of airlines continuing heavy fare discounts is low.

In fact, airlines hiked up airfares in January 2017. A hike of $3 per flight was initiated by JetBlue Airways (JBLU), and followed by Delta Air Lines (DAL), American Airlines (AAL), United Continental (UAL), Alaska Airlines (ALK), Southwest Airlines (LUV), and Virgin America. Investors can gain exposure to airlines by investing in the PowerShares Dynamic Leisure & Entertainment ETF (PEJ), which invests ~17.4% of its portfolio in airlines.


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