(Bloomberg) -- The days of bargain basement airfares are ending as the U.S. vaccine supply unleashes a wave of pent-up travel demand.
A rebound in trips to visit friends and family coupled with flight schedules that remain below 2019 levels means more flyers chasing fewer seats. That’s pushing up trip costs for the peak summer season as carriers reboot revenue management tools -- which raise fares in line with stronger seat demand -- after a year in which planes often flew with rows of empty seats.
“I haven’t been super-pleased with the prices,” said Jackson Ralston, 29, of Lake Dallas, Texas, who is monitoring daily Google (NASDAQ:GOOGL) Flight fare alerts to attend a friend’s bachelor party this summer. Current ticket prices from Dallas to Manchester, New Hampshire, for the planned weekend at a lake are close to $600.
“I’m debating whether or not I’ll need to fly into more of a major hub over there and just rent a car and drive up,” he said.
The hit to consumer wallets is buoying airlines that have had to rely on billions of dollars in federal aid to weather a collapse in demand caused by the coronavirus pandemic. Coupled with deep cost cuts last year, the fare recovery is making carriers including Delta Air Lines Inc (NYSE:DAL). and United Airlines Holdings (NASDAQ:UAL) Inc. more confident that their run of red ink will end in the third quarter.
Airlines Rally as U.S. Travel Rebound Quickens Into Summer
Airfares jumped a record 10.2% in April from the prior month, the U.S. Labor Department reported May 12, reflecting a surge of demand as cooped-up consumers returned to the skies.
Compared with the level in the first quarter, the median round-trip fare has climbed 12% to $357.36, according to TripActions Inc., a corporate travel manager that collects fares from global ticket-distribution systems. Those three months are a rough proxy for the U.S. summer buying season as people plan vacations and weekend trips.
The price increases are likely to stick, making the ultra-low fares of a year ago a distant memory. In the U.S. domestic market, fares will average $283 for the period of June-August, a 35% increase from last year and only 4% below the level of summer 2019, according to a May 18 fare forecast from Hopper Inc., a travel search and analytics company.
“In the domestic market, I expect that fares will meet those of 2019 levels” sometime between August and October, said Adit Damodaran, an economist with Montreal-based Hopper.
Lost Time
Billions of dollars in federal aid kept airlines afloat last year while also requiring them to maintain certain service levels. As a result, the seat supply didn’t fall as quickly as demand.
In late March 2020, with would-be flyers staying home en masse, airlines offered some flights between New York and the West Coast for as little as $88, down 51% from earlier in the month, according to Hopper.
Now the airlines are making up for lost time by seizing on consumer appetites for leisure trips, primarily for domestic flights and popular Caribbean and Latin American beach destinations.
Canada and most of Europe remain largely off limits to leisure travelers, with lengthly mandatory quarantine protocols for inbound visitors. Industry executives see a recovery in Asian travel as even further behind. To adjust, airlines are shifting some of their largest twin-aisle aircraft to domestic routes that were served largely by smaller planes before the pandemic.
The three largest U.S. airlines have increased wide-body flights in the U.S. by 30% this year through August, with numbers peaking in June and July, from 2019 levels, according to data from Cirium. American Airlines (NASDAQ:AAL) Group Inc., for example, is using big Boeing (NYSE:BA) Co. 777 jets on flights connecting Miami with Los Angeles and New York’s John F. Kennedy International Airport.
There’s still a ways to go before pricing fully catches up with the levels of 2019, a record year for air travel. Domestic leisure fares so far this quarter are roughly 18% below the same period two years ago, according to data compiled for Bloomberg News by Menlo Park, California-based TripActions.
Relative to 2019 levels, ticket prices can vary widely by route. The median price for a round-trip ticket from Minneapolis to Orlando, home of Disney and Universal theme parks, is $304.68 this quarter, down 28% from two years ago, according to TripActions. Los Angeles to Orlando is 12% lower. But New York to Miami fares are 39% higher, at $487.
Improved Outlook
The improving outlook for pricing power has helped spur a rally in a Standard & Poor’s index of major U.S. airlines, which has advanced 30% this year. The index rose to a six-week high Wednesday after recent signs that the recovery was strengthening.
Booked fares on June flights are nearing the same level as two years ago, Southwest Airlines (NYSE:LUV) Co. said May 19, spurred partially by the carrier’s plan to fly only 84% of its 2019-level capacity in the second quarter.
Likewise, while United is touting July as its busiest flight schedule since March 2020, the month’s flying will still be about 20% below the level of two years ago. United is flying 126 new routes in July it didn’t have two years ago, a sign of what the airline and its competitors have done to revamp their networks and pursue leisure traffic destinations near and far.
Delta’s bookings have been better than expected recently as customers resume booking trips further in advance, said Glen Hauenstein, the company’s president. Forward bookings are above 2019 levels for leisure travel, he told a Wolfe Research conference May 25.
“July is better than June and August is better than July,” Hauenstein said. “September is better than August.”
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