Airfares Drop to Lowest Average Price Since 2010

by Josh Lew
Last updated: 4:15 PM ET, Wed February 10, 2016

Photo courtesy of Thinkstock

After airlines announced a strong showing in 2015, travelers began to hope for cheaper airfares. Aside from a few limited-time promotions, the kind of rock-bottom fares that were wishing for never materialized.

But that doesn't mean that flying hasn't gotten cheaper. In fact, flights are cheaper than they have been since 2010, according to the U.S. Department of Transportation. The DOT's Bureau of Transportation Statistics reported that average round trip domestic fares were $372 during the third quarter of 2015. That was down 6.2 percent compared to 2014.

Yes, fares are getting (a little) cheaper

So, yes, flights are getting cheaper, but so is jet fuel. The DOT has also reported that year-on-year fuel costs were down by as much as 37 percent. This means that airlines are passing some of their fuel savings on to passengers, but only a portion of it.

Airfares are headed in the right direction (as far as consumers are concerned), but the significant drop that many travelers are hoping for probably won't occur. Though oil prices are low and profits are high, other key figures have some in the industry concerned.

Supply and demand rules

Fuel costs actually only play a small role when it comes to deciding what to charge for airline tickets. The most important variables are competition and supply and demand. When American Airlines or Delta lower fares on a certain route, it is because they want to challenge low-cost carriers like Spirit or Southwest. On other, less contested routes, demand remains high and the number of seats low, so airlines can get away with charging more for tickets.

Because of this, savvy investors and airline industry insiders do not only look at overall profits when they are judging airline performance. They look at revenue units such as PRASM (passenger revenue per seat mile). This allows them to see how cost-effective an airline's operations are. Low numbers for this and other similar figures are the reason that some airlines, including Southwest and Alaska Airlines, saw their stock price fall at the beginning of the year even though they were about to announce a strong performance for 2015.

No big drop in fares on the horizon

This could mean that unless they happen to be flying on a route where several airlines are competing for business, fliers will have to settle for fares that are six percent lower than they where last year and the lowest that they have been in half a decade. As long as demand remains high, fares will not fall as quickly as many would like.

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