Have Airfares and Hotel Rates Finally Hit Their Peak?

Earlier this year, flight prices soared to some of the highest levels seen in years, as throngs of travelers engaged in revenge travel, eagerly paying premium prices for flights to nearly any destination. Little did we know, as we swiped our credit cards with determined resolve, that relief was on the horizon.

In July, airfares declined for the fourth consecutive month, according to the U.S. Bureau of Labor Statistics’ Consumer Price Index. This trend has made flying considerably more affordable—at least for the time being.

Katy Nastro, a travel expert at flight deal tracking service Going.com, explains that as pent-up demand is released and more transatlantic flights are introduced, air travel is returning to a more normalized state. Typical seasonal price fluctuations, with higher costs during peak seasons and lower rates in shoulder or off-peak times, are re-emerging.

Going.com notes that interest in traveling to Europe peaked in April and has been decreasing since then. This decline in demand coincides with an increase in transatlantic flight capacity, which is putting downward pressure on fares. Data from aviation analytics firm Cirium indicates that the number of airline seats available between the U.S. and Europe over the next three months has risen by 15 percent compared to October through December 2022, primarily due to the resumption of aircraft deliveries that were delayed during the pandemic.

Some airlines have acknowledged that their fall bookings are weaker than anticipated. Last week, Frontier Airlines revised its earnings forecast, citing a "significant unexpected change in the booking trajectory" and noting that "sales in recent weeks have been falling below typical seasonal trends."

According to Going.com, one contributing factor is the resurgence of budget airlines, with several low-cost carriers, such as Breeze Airways and Norse Atlantic Airways, entering the market since the pandemic. Norse Atlantic now offers transatlantic flights from eight U.S. cities. These budget airlines introduce more competition, easing some of the pent-up demand while simultaneously driving prices down.

As the summer travel frenzy subsides, the combination of decreasing demand and increasing supply has led to a nearly 30 percent drop in airfares for autumn compared to peak summer prices, according to travel booking site Hopper. Average round-trip fares from the U.S. to Europe are now $728, down from an average of $1,058 during the summer. Domestic airfares have also decreased by about a third, averaging $211 round trip, compared to nearly $300 previously.

Going.com has found round-trip fares as low as $267 to Dublin and $310 to London from the United States. “We’re even spotting some fantastic fares for travel next summer. If high prices kept travelers from Europe this summer, it’s time to prepare your passports, as prices are dropping and we expect a surge of cheap fares to Europe in the coming months,” Going.com reports.

Hotel prices have also moderated somewhat, though not as drastically as airfares. Hopper indicates that the average nightly hotel rate is down 5 percent compared to summer peaks, with the current national average at $196 per night. Certain locations have experienced larger declines, such as Orlando, where rates have dropped 10 percent, and San Diego, which has seen a 20 percent decrease over the past month. Conversely, some cities, including New York City, Houston, Los Angeles, and Washington, D.C., have experienced rising rates this fall compared to the summer.

"Hotel occupancy rates and prices are set to decline over the next three months until we reach the next peak season—the winter holidays," explains Nastro.

Will this downward trend carry into the holiday season and beyond?

Travelers planning to fly during Thanksgiving and Christmas might not encounter the same deals seen this fall. However, Hopper indicates that fares should be less painful compared to last year's holiday travel. A recent report from the booking site reveals that Thanksgiving airfares are averaging 14 percent lower than last year and 7 percent below 2019 levels.

Currently, flights during the Christmas season are averaging $52 less per ticket, which is a 12 percent decrease from last year, according to Hopper.

However, with jet fuel prices rising to an average of $3.15 per gallon—50 percent higher than the summer low of $2.09—"travelers should anticipate higher holiday airfares, with fewer last-minute deals available compared to last year," notes Hopper.

Travelers are encouraged to book their holiday trips sooner rather than later, ideally securing both Thanksgiving and Christmas flights by October 14 to snag the best rates.

For Thanksgiving, domestic hotel prices are currently averaging $206 per night, while Christmas rates average $233 per night. However, if you're aiming for a bargain in a U.S. city during the holidays, consider waiting. "By being flexible with your accommodations, you could save as much as 25 percent by booking last minute, on the day of or the day before your stay," reports Hopper.

This last-minute approach, however, is not advisable for popular vacation spots like Mexico, Hawai‘i, or Florida. To secure the best rates for holiday stays in these sunny destinations, travelers should aim to book at least three weeks in advance.

Looking ahead to 2024, the predictions become significantly murky.

In its updated earnings guidance last week, American Airlines highlighted the rising price of oil as a growing concern.

"Fuel prices have risen sharply," American Airlines mentioned, noting that they will also need to consider the increased expenses associated with new pilot contracts.

According to travel industry expert Henry Harteveldt, president of Atmosphere Research Group, the costs incurred from rising fuel prices may ultimately be passed on to travelers.

Harteveldt states, "Overall, demand appears to be decreasing, but rising oil prices lead to higher jet fuel costs, which airlines recover through increased fares and selling fewer seats at lower rates."

Mike Arnot, a spokesperson for Cirium, points out that as airline capacity expands in 2024, "fares should theoretically decrease" next year.

He adds, "There will be more seats available for sale, and the post-pandemic surge in domestic and transatlantic travel experienced by airlines in 2022 and 2023 will have diminished—though rising fuel prices and additional labor costs from new contracts could still impact travelers' wallets."

The key takeaway, according to Harteveldt, is that anyone who discovers a great airfare this fall should seize it, as "luck is definitely on their side."