Most major U.S. airlines went on the record earlier this year with their desire to constrain capacity growth in order to maintain the price of airfares.
But new data from the Bureau of Labor Statistics’ July 2015 Consumer Price Index (CPI) show that airfares have dropped 5.6 percent year-over-year in July 2015, the largest one month decline since December 1995 — nearly 20 years ago.
Fares fell 0.2 percent in July 2014, but it isn’t totally clear what is responsible for the historic decline this summer.
“Airline fares within the CPI are priced in the same manner as the average consumer would purchase an airline ticket, several weeks in advance,” said Sharon Gibson, an economist at the BLS. “Airline fares tend to be highly seasonal and historically the summer is a season with a high demand. The July fare data may be showing a decrease in airline fares from a much lower demand from the fall season.”
Lower jet fuel costs are almost certainly playing a role too.
“As of August 10, jet fuel prices for North America were down 11 percent on the one month change,” continued Gibson. “This may also be a contributing factor.”
Airline industry analyst Robert W. Mann told Skift that the growth of ultra low cost carriers such as Spirit could have contributed to the decline in airfares, in addition to the increase in ancillary purchases that may not be included in the CPI calculation.
“These factors combine to pressure average fare values, even if fares themselves have not changed at all,” said Mann, referring to the total cost of the ticket. “Load factors remain at record highs.”
Overall, he concluded, the combination of ancillary services and the fares themselves are contributing to airline revenue growth in contrast to the decline reported by the government.
In one respect, at least, the reported fare drop is good news for U.S. airlines that are the subject of a U.S. Department of Justice probe of possible pricing collusion. That difficult contention to prove would become even more problematic for the government in an atmosphere of declining fares.