The Good and Bad of Lower Flight Prices

It took a heck of a lot longer than some might have expected, but the long-term decline of fuel prices is finally starting to take some of the pain out of hitting the airport.

According to the Bureau of Labor Statistics’ Consumer Price Index for July  (opens in a new tab) [PDF], plane fares dropped by 5.6 percent between June and July—the largest single-month drop-off since December 1995 and a strong contrast to the seasonally adjusted 0.1 percent increase in consumer prices across the board. (Year over year, the index for airline fares has decreased by at least 5 percent during each of the past five months, Slate notes  (opens in a new tab).)

The decline in ticket prices comes half a year after a drop in fuel prices was felt in most other industries. The savings didn’t reach air travelers as quickly, as it takes longer for fuel prices to have an impact on airfares than on prices of other consumer goods and services. And airlines are adding capacity, putting additional downward pressure on prices, according to Airline Weekly‘s Seth Kaplan.

“When fuel prices fall, passengers always ask why that savings isn’t passed along to them,” Kaplan told CNBC  (opens in a new tab). “But airlines don’t start planning to add capacity until six, nine, 12 months out.”

Lower flight prices are a big bonus for travelers, but they’re putting pressure on the airline industry. The Wall Street Journal notes  (opens in a new tab) [subscription] that, despite record profits for the industry, most investors focus on unit revenue—a measure linked directly to ticket prices. That often means that when ticket prices drop, so do stock prices. American Airlines stock is down nearly 19 percent so far this year, and United has dropped 12.5 percent.

On the other hand, the high volume of summer air travel could buoy the industry a bit: Last week, Airlines for America projected  (opens in a new tab) that Labor Day traffic will surge to 14.2 million fliers—up 3 percent from a year ago. As USA Today notes  (opens in a new tab), the industry had previously predicted that this summer would be the busiest for U.S. air travel in history.

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