Back in December, my colleague Josh Voorhees wondered why U.S. air travelers weren’t seeing much relief in ticket prices. The cost of jet fuel, after all, was down 32 percent in the past 12 months. But instead of passing these savings onto consumers, domestic airlines had actually increased fares by an average of $10—or about 3 percent—in 2014. The reasons, he found, were manifold. A string of megamergers in the airline industry. Increasing demand for seats. Fuel contracts set months in advance. The most optimistic outlook for consumers came from the International Air Transport Association, the industry’s largest trade group, which suggested that when summer 2015 rolled around, the average airfare could fall by up to 5 percent.
Well, now that summer 2015 is in full swing, IATA’s ticket-price predictions are looking pretty prescient. Case in point: When the Consumer Price Index for July was released on Wednesday, it showed that the index for airline fares fell a striking 5.6 percent from June to July—the biggest one-month drop since December 1995. On a year-over-year basis, the airline fare index has also fallen 5 or more percent in each of the past five months. You can see July’s sharp downturn in the chart below:
Federal Reserve Bank of St. Louis
While this is good news for consumers, it’s not the best for air carriers, despite their current record profits. From the Wall Street Journal:
Costs have dropped sharply for airlines, pushing profits higher. But a decline in ticket prices has hurt the companies’ unit revenue, which measures the amount of money taken in for each passenger flown a mile. Investors remain fixated on that metric, which has slumped this year and may not turn around until 2016. They are watching for signs that airlines are responding to better times by over expanding, setting up another downturn.
What’s hard to say is whether the decline in airfare that the CPI has registered accounts for another airline trend—unbundling tickets. In an effort to bolster profits, major air carriers have increasingly started to separate out all the amenities of a flight and sell them as add-ons. JetBlue earlier this year added a fee for passengers’ first checked bag for the first time. Ultra-cheap companies like Wow Air keep their base fares deceptively low by charging more for everything from prebooked seats to bringing a musical instrument aboard. As I wrote in Slate in December, buying a plane ticket today is kind of like ordering a sandwich and having to pay extra for the bread. On its website, the Bureau of Labor Statistics says only that the CPI’s airline fare measurement takes into account “all applicable taxes” as well as “fuel surcharges, airport, security, and baggage fees.” For once, it’s truly unclear if additional fees may apply.
