Change is in the air at the beginning of every new year. It’s a time to make resolutions, set goals, and imagine just how different things might be in another twelve months. But at least in one way, 2017 promises to bring more of the same.
Most projections have airfares remaining flat in the year ahead. Ticket prices followed a downward trajectory in 2016, so for travelers, no news is good news. Moderate price increases along some North American routes are likely, while elsewhere across the globe prices be will stagnant.
Various predictions from corporate travel management companies, travel agencies, and airline industry research groups show a range of possible outcomes for airfare movement:
- Slight Increase: A report co-authored by the Global Business Travel Association and Carlson Wagonlit Travel forecasts North American airfares rising 3.7% in 2017.
- Slight Increase: Advito’s 2017 Industry Forecast predicts that economy fares will be “largely unchanged, with business class airfares likely to see a negligible rise of 1%.
- No Movement: The Travel Leaders Forecast Group projects that the average domestic air ticket will cost $410.21 - virtually unchanged from 2016, but more than $30 cheaper than in 2014.
Macroeconomic factors are partially to thank - or from the perspective of carriers, to blame. Slowing economic growth in Asia, combined with political uncertainty in Europe and the United States, will weigh on business travel demand. Tourism also faces headwinds, such as increased terrorist concerns and Zika Virus.
Airline industry dynamics will further limit price inflation.
Fuel prices have remained persistently low, and there’s little sign of that changing. Crude oil was 44% lower at the beginning of 2017 than it was three years previous, and though prices did increase through most of 2016, that was only after reaching 13 year lows in February. Even the announcement of OPEC production cuts in December didn’t have a pronounced effect on prices. In 2017, fuel prices are likely to stabilize in a range that’s cheap by historical standards.
Airlines have posted strong earnings - and in some cases record profits - due to lower costs, but the industry remains on guard. Fares have fallen along with fuel prices, leading to what American Airlines CEO Scott Kirby (now with United) described as a challenging revenue environment. Increased competition from low-cost carriers has helped drive recent fare decreases. In the absence of robust growth in passenger demand, 2017 is unlikely to bring much in the way of expanded capacity. Forbes reports that “the Big Three U.S. carriers – American, Delta and United – have slammed the brakes on their previously aggressive capacity growth plans by slowing down, cancelling or deferring deliveries of new planes they previously ordered.” Indeed, passenger load factor has been remarkably stable over the past five years, with the annual average in 2016 less than .17% off the all time peak.1. GBTA Foundation and Carlson Wagonlit Travel. 2017 Global Travel Price Outlook. 2016.
2. Advito. 2017 Industry Forecast. 2016.
3. Travel Leaders Group. The Year of Uncertainty: 2017 Global Outlook. 2016.