Throughout a good portion or 2022, the price for domestic flights has been through the roof. The increase in travel demand combined with the airlines cutting flights due to labor constraints drove airfares to prices that were higher than we saw in 2019. The spike was more dramatic because for much of 2021, prices were down 20 – 40% from 2019 levels.
Expensive airfares, accommodations and rental cars made the summer of 2022 one of the most costly travel times we’d seen. Now that people have gotten the “revenge travel” bug out of their system, there’s less desire to pay exorbitant prices. When it comes to business travel, companies are less willing to spend due to increased interest rates and fears of a possible recession in the near future.
It’s no surprise that domestic airfares have fallen below comparable 2019 levels.
In a recently released note, Bank of America’s airline analyst Andrew Didora says domestic prices for the week ending 8/21/22 dropped to 3.5% below 2019 levels.
While prices are moderating, demand for airfares is falling dramatically, with bookings down 23.6% from 2019 levels (and down 11% from the prior week). This is the most significant drop off in bookings since February, when the recent spike in travel started. It’s easy to find the cause when you break down the numbers. Leisure bookings were down 22% but corporate bookings dropped by 37% from 2019.
This results in a divergence in travel pricing as we’ve seen before. Airfares to business centers, like New York City, are falling quickly but leisure destinations are not seeing as dramatic a drop.
Weekly numbers can be volatile so there’s no way to know if this trend will continue. On average, travel website Hopper says that airfares are already down $100 from the summer peak but are expected to be 20% higher than 2019 for travel this fall.
The strategists at Bank of America are advising investors to see if the softness in travel bookings continues for the next 1-2 weeks. If it does, it could signify an underlying demand problem which would put downward pressure on airfares.
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