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Fall travel: Airline 'price relief is here,' economist says

Hopper Lead Economist Hayley Berg joins Yahoo Finance Live to discuss the expectations for Labor Day weekend travel, price relief, the demand for travel despite economic uncertainty, labor shortages, and the outlook for fall travel.

Video Transcript

- The summer travel season is capping off this upcoming weekend with Labor Day, this marking the end of what was a busy and at times frustrating flying period for many people out there. But as we head into fall, or autumn, should we expect to see delays, cancellations, and high prices persist?

For that, let's bring in Hopper Lead Economist Hayley Berg. Hayley, great to have you here with us today. First and foremost, I mean, that is the question. Should we expect to see some of the pricing pressures that consumers have seen persist, even despite some of the headaches with just navigating through the travel operations and experiences?

HAYLEY BERG: The good news is we've already seen major relief on airfares, especially in the domestic market. This August, airfare was down to about $286 for a domestic ticket. And that was down more than 25% from where we peaked back in May in the high $300 to $400 per ticket. Price relief is here. It will be here probably through late September or early October. And when that busy holiday season starts, we'll see prices ramp back up, close to about $400.

- Hayley, are you getting any data or any intel on cancelations? There's so much economic concern out there. Are you seeing people just eat the price of their tickets and just not take the vacation?

HAYLEY BERG: We haven't seen an influx in cancellations, despite the incredible disruption, and even in the summer, airfares 40% and 50% higher than in previous years. What we have seen is that travelers are spending a little bit more to protect their purchases.

On the Hopper app, one in five customers add a flight disruption protection product. It's about $34 in addition to the ticket. And it allows them to rebook themselves immediately on the app if they're delayed, canceled, or have a missed connection. So we haven't seen travelers not traveling. We've seen them opening up their budget a little bit more so they can buy a protection product and still take that vacation.

- We've seen so much spending shift from goods to services and largely those services around that travel experience as well. And so do we expect some of the overall spending as part of that travel, say, if you're on a flight and you want to upgrade, or you want to just add on to that experience itself? Do we expect some of that to start to pull back and start to go back into goods?

HAYLEY BERG: What we typically see when there's less extra money in the wallet for Americans or economic concerns is not a replacement of travel, but travelers looking for better deals, planning further in advance, using price monitoring tools so that they can get a lower price for the same trip or potentially going somewhere a little less expensive.

So we typically see the savings tactic start to happen. We're seeing that a little bit more for the holidays. Already prices are very high for Thanksgiving and December travel. And we are seeing behavior change, more towards the saving tactics, rather than excluding purchases or not traveling.

- So Hayley, we're coming off a really brutal day for the stock market. I mean, the Dow fell over 1,000 points on Friday. A lot of consumers are scared out there. I mean, to that point, do you see them just not taking those holiday trips and maybe rebooking or looking to early next year when things perhaps stabilize?

HAYLEY BERG: We have seen resilient demand for travel this year. So so far, we have no indications that we'll see demand impacted this holiday season. Take summer, for example. There was an incredible ramp up in demand for travel. Prices peaked for some travelers over $600 or $700 for domestic travel. Yet we never saw demand falter. We actually saw travelers just paying more and more because they hadn't traveled.

This holiday season will be similar. With the Delta and Omicron waves last year, many travelers had canceled flights and didn't make it home or to vacation for the holidays. And we're expecting pent up demand for the holidays to return with a vengeance. And I think there will be tremendous demand in the market, despite more economic concerns from travelers.

- One of the favorite videos that I saw on social media recently was a pilot and this time lapse of them landing a plane amidst fog and what looked to be a little bit of a storm taking place and somebody commenting, saying, pay them whatever they want, my goodness, because it's incredible to see what they actually are moving and navigating through. With all of that in mind, there were some major pilot negotiations, contract negotiations, with those unions. Should consumers start to effectively see that priced into some of their tickets that they're paying too?

HAYLEY BERG: Higher costs for airlines typically are passed on to consumers in some way. But the biggest contributing factors for Americans when they pay that ticket price are going to be the cost of jet fuel, so the cost of flying that plane, and the equipment itself, how much it costs to fly the plane, the staff in flight. Pilots are a part of that. But jet fuel and demand are really the two biggest things that we watch when we're looking out for major price increases.

We've seen significant relief on jet fuel prices. They're still about 80% higher than they were in 2019. But they're down from over $5 per gallon. So we've seen some relief on jet fuel. We expect demand to remain high. So the higher jet fuel and the higher demand are going to be the primary reasons that travelers see higher prices the rest of this year. But staffing costs are certainly a part of the equation.

- Well, with that pullback in jet fuel prices, like we just showed that chart, Hayley, do you see any airlines giving away big Labor Day deals?

HAYLEY BERG: We are seeing low prices for Labor Day, especially some deal destinations in the US, some of those most popular routes, destinations in Florida, Denver, Las Vegas. We are seeing incredible deals to many of those destinations. And it's airlines trying to incentivize travelers to take that one more trip this year.

So if it's not Labor Day, it should be September or October. Airfares will be the lowest between September and October that they will be before the end of the year. So if you haven't snuck in that last trip, now is the time to book it and plan to travel in the next eight weeks or so.

- What are you seeing and tracking on corporate travel right now, not just in airlines, but also in where that means for some of the Ubers and the Lyfts of the world, or the ridesharing, that means that they can see some of that environment or that spender come back into the fray, or even on the car rental side, where we know that there's more of a propensity to once you get to a destination, rent a car to get out to the corporate offices, or if you're traveling between destinations, once you finally get to that place that you need to be at to close contracts? And corporate travel, quite frankly, is pulling back. Companies are already talking about this.

HAYLEY BERG: Corporate travel has recovered much more slowly than leisure demand. Leisure demand really exploded, starting essentially in March and April. And corporate, as we've seen, has been much slower to return. But the airlines have said in most of the earnings calls that that return is steady. It is slow but steady. And we are expecting corporate travel to return to some degree.

So when it does return, we'll will see more of those weekday hotel stays filled out. We'll see more of the regular rental car business coming back online. But the reality is that today, just with the leisure demand, demand is outstripping supply across the travel industry. Airlines have only recovered about 95% of their 2019 capacity from the domestic market, about 85% for international markets.

Rental cars, they're holding the supply they have. They're not actively adding much supply, especially with new car prices being so high, given the chip delays and shortages. So some of the lack of corporate demand is likely helping keeping the low supply in the marketplace and high demand in a little bit of an equilibrium. But we do hope to see that recovery, especially as we head into 2023, and more capacity comes online.

- Great analysis for us here this Monday morning. Hayley Berg, Economist at Hopper. Have a great long Labor Day weekend.

HAYLEY BERG: You as well.