Fare Forecast: Will Airline Ticket Prices Finally Nosedive in 2023?

Fare Forecast: Will Airline Ticket Prices Finally Nosedive in 2023? - Cheap Flights Expected as Demand Softens

After two years of pent-up demand and sky-high airfares, 2023 may finally bring some relief for budget-conscious travelers. Industry analysts predict average ticket prices could fall by 5-10% this year as demand softens and airlines compete aggressively for passengers.

For starters, the white-hot demand we saw in 2021 and 2022 has cooled considerably. "People got their fill of travel during the pandemic reopening," notes Henry Harteveldt, travel industry analyst and president of Atmosphere Research Group. "Demand won't be as irrationally exuberant."

With demand tempering, airlines have already started rolling out fare sales for 2023 travel. "The competitive environment is fierce right now," says Adit Damodaran, economist at Hopper. "Airlines are trying to lock in bookings early as questions loom about consumer spending in the months ahead."

Delta kicked off the New Year with a major 3-day fare sale, with round-trip tickets starting as low as $97 domestically. American and United quickly matched many of the sale fares. "We expect this level of competition to continue throughout 2023," says Damodaran.

The big airfare sales are aimed at filling seats during the historically slower winter and early spring travel periods. But experts say even summer leisure fares could dip 5-10% versus last year.

Lower fuel prices are also giving airlines room to discount fares in 2023 without destroying their profits. After spiking early in 2022, oil prices have fallen back below $80 a barrel. If prices remain low, airlines can pass some of those fuel savings on to consumers.

Fare Forecast: Will Airline Ticket Prices Finally Nosedive in 2023? - Airlines Expand Basic Economy to Woo Budget Travelers

As airlines vie for price-sensitive leisure travelers in 2023, expect to see more stripped-down “basic economy” fares popping up in search results. Major carriers have rapidly expanded these bare-bones fares over the past two years.

American Airlines led the charge in rolling out no-frills basic economy fares back in 2017. Delta and United quickly followed suit. The big three now offer basic economy on virtually all domestic flights. Even JetBlue and Alaska have joined the bandwagon.

So what exactly is basic economy? Well, it’s pretty much what it sounds like – just a seat on the plane and nothing more. No seat selection. No overhead bin access. No elite qualifying miles. And forget about making changes later – basic economy tickets are non-refundable and non-changeable.

Airlines save on costs by limiting perks and the ability to rebook. And passing those savings to customers in the form of cheaper base fares. So if all you care about is getting from Point A to Point B for the lowest price, basic economy delivers.

But buyer beware: Many a traveler has faced frustration after inadvertently booking a restrictive basic economy ticket. Heather Poole, a flight attendant and author, took to social media to vent after getting burned. “I feel duped by American Airlines basic economy fare because it didn't dawn on me that I wouldn't be allowed access to the overhead bin.”

Mike Arnot experienced a similar shock when checking in for his basic economy flight on United. “I realized I had made a huge mistake. My 'cheap' ticket was going to cost me if I wanted an actual seat and a place to stow my carry-on.”

So before pouncing on that cheap basic economy fare, understand exactly what you’re getting. Carefully read all restrictions. And think twice if you’ll need flexibility later to change plans. Basic economy only works for travelers who packed ultra light and have no hesitation treats their tickets like nonrefundable, nonchangeable bus tickets.

For everyone else, basic economy risks becoming a budget traveler’s nightmare. Still, major airlines show no signs of slowing the spread of these bare-bones fares. As American Airlines president Robert Isom noted: “We’re going to go as far as we can to compete in that very price-sensitive customer segment.”

Fare Forecast: Will Airline Ticket Prices Finally Nosedive in 2023? - International Routes Face Steep Competition

As airlines expand their global networks, international routes are becoming fiercely competitive battlegrounds. Legacy carriers face surging competition not only from low-cost upstarts, but also from international joint ventures and overseas carriers like Emirates and Turkish. This perfect storm of competition puts downward pressure on international fares.

Nowhere is the international fare war hotter than routes across the Atlantic between the US and Europe. American, Delta and United have competed for decades on these prime transatlantic routes. But in recent years, they’ve faced an onslaught of new entrants and alliance partners slicing into their piece of the pie.

Take the New York to London route, for example. Norwegian shook up the market starting in 2014 by offering $300 roundtrip fares on its new Boeing 787 Dreamliners. Level and JetBlue have also jumped into the fray with rock bottom sale fares. On the alliance side, Delta partner Virgin Atlantic offers ample award availability at competitive rates.

Across the Atlantic, behemoths like Lufthansa and British Airways also link the US and Europe through close partnerships with United and American Airlines. Joint ventures allow deeper cooperation on routes, schedules and pricing. And give consumers access to a wider network of flights under a single reservation.

Emirates, Etihad and Qatar Airways provide additional options for crossing the pond, often at very attractive rates in their premium cabins. These Middle Eastern mega-carriers offer a compelling alternative to nonstop flights, positioning their hubs as convenient one-stop connection points between the US and Europe.

Similar competitive dynamics are playing out across the Pacific between the US and Asia. Tokyo has emerged as a fierce battleground, with United, Delta, ANA, JAL and Hawaiian all vying for passengers. Budget carriers like AirAsia X have also joined the fray.

For international routes in 2023, this intense competition translates into great fare deals for globetrotting consumers. With so many options at a wide range of price points, international air travel is more accessible than ever. Of course, the value offered by different carriers varies widely. So savvy travelers need to dig into restrictions, routing options, and award availability to identify the best overall options.

Fare Forecast: Will Airline Ticket Prices Finally Nosedive in 2023? - Domestic Leisure Travel Poised for Comeback

After being grounded early in the pandemic, domestic leisure travel has come roaring back with a vengeance over the past two years. But industry watchers say 2023 could be the year it finally returns to normalcy.

"Leisure demand has been on fire, but it’s starting to plateau,” notes Henry Harteveldt of Atmosphere Research. “We expect more rational growth going forward." While still robust, domestic leisure travel is forecast to expand at a steady single-digit pace this year versus the double-digit spikes of 2021 and 2022.

For many travelers, the pandemic awakened a new appreciation for exploring America’s backyard. From national parks and beach towns to urban weekend getaways, pent-up wanderlust drove a surge in domestic vacations. Vrbo’s 2022 Trend Report found nearly two-thirds of travelers planned to take more U.S.-based trips over the next year.

But after an epic binge of “revenge travel,” some signs of travel fatigue have surfaced. Hopper economist Adit Damodaran observes, “Many consumers have already checked major destinations off their bucket lists.” With big trips already crossed off, Damodaran expects slower growth in spending on domestic flights and hotels this year.

Shifts in remote work are also impacting leisure travel patterns. Mia Campbell, a Seattle-based writer, took full advantage of work-from-anywhere policies to indulge her inner nomad: “I've done two months in Hawaii, three in Mexico. It’s been amazing to live like a local and fully experience new destinations."

But Campbell also admits Zooming from paradise has lost its luster: “Now I find myself craving routine. I’ll still work remotely, but probably take shorter 2-3 week trips abroad and focus more weekends on domestic trips.”

For airlines, the question in 2023 is whether leisure demand will keep filling seats during off-peak periods. “The pandemic broke seasonal leisure travel patterns,” explains United Airlines CFO Gerry Laderman. “We’ve seen huge demand during February ski trips and September beach vacations when travel normally slows.”

Fare Forecast: Will Airline Ticket Prices Finally Nosedive in 2023? - Business Travel Slow to Recover

Industry experts predict corporate travel recovery could stretch into 2024 or beyond. That prolonged slump puts a drag on airline revenues and yields. During earnings calls, executives bemoan the slow corporate rebound. United CEO Scott Kirby lamented a “delay relative to expectations in the recovery of business travel.”

What’s behind the sluggish return of business trips? For starters, surging COVID infections sparked by new variants have repeatedly stalled momentum. Each wave leads to fresh restrictions, dimming corporate enthusiasm for hitting the road.

Videoconferencing has also permanently replaced some portion of business trips. Ruth Horowitz, Vice President at Ayco, a Goldman Sachs company, observes: “A lot of in-person meetings have been switched to Zoom, which saves time and money.” Why fly cross-country for one-day meetings when you can connect virtually?

Lingering recession fears have also made companies cautious about approving trips. As Delta CEO Ed Bastian put it: “Business travelers are going to be slow coming back until they have certainty the economy is stable.”

Up in the air is what percentage of business trips lost during COVID are gone for good. Pre-pandemic corporate travel generated over $350 billion annually. But McKinsey estimates at least 5-20% of that spend might not return post-COVID.

For airlines dependent on lucrative business fares, the corporate travel slump blows a huge hole in revenues. During United’s investor day, airline President Brett Hart revealed business accounted for nearly two-thirds of United’s 2019 passenger revenues. Recovering just 25% of business demand would generate $2 billion for the airline.

So when will the tide turn? Airline executives optimistically point to fall 2022 as the long-awaited inflection point. But ongoing economic headwinds suggest a return to normalcy could take longer. Until business travel recovers substantially, airlines miss out on a vital profit pool.

Without its premium corporate passengers, United can only break even on flights, admits CEO Kirby: “We need business demand to reach 65-70% of 2019 levels to be profitable on a flight.”

Until then, airlines must rely more heavily on lower-yielding leisure fares to fill seats. That squeeze on profits may translate into additional barriers for leisure travelers, through seat fees, baggage fees, and reductions in amenities.

On the plus side, the corporate travel drought presents huge opportunities for bargain hunting leisure flyers willing to book flights during off-peak business travel times. With companies still limiting trips, expect empty premium cabin seats and attractive last-minute fares.

Fare Forecast: Will Airline Ticket Prices Finally Nosedive in 2023? - Ultra Low Cost Carriers Grab Market Share

As major airlines shrink seats and slash amenities to compete on price, they’re ceding ground to Ultra Low Cost Carriers (ULCCs) adept at no-frills travel. ULCCs like Spirit, Frontier and Allegiant win on pure ticket price by unbundling everything imaginable as an add-on fee.

“We offer absolute everyday low fares but give customers total control over what they want to pay for beyond that,” explains Lukas Johnson, Chief Commercial Officer at Spirit Airlines. It’s a formula that’s winning over millions of converts happy to forego legroom and bring their own water if it means saving $100 per ticket.

Over the past decade, ULCCs have doubled their share of US domestic air travel. Allegiant and Spirit now rank among the five largest airlines in Las Vegas and Orlando. Even in sprawling metro areas like Los Angeles and Dallas, ULCCs account for 1 in 6 departing flights.

Part of their appeal is serving underutilized secondary airports that rarely or never see flights from major carriers. “We look for airports surrounded by lots of people but with little low-cost competition,” says Johnson. Flying to LA/Ontario or Dallas/Love Field instead of LAX and DFW lets Spirit avoid congestion and costly gate fees.

Network airlines have been forced to respond given ULCCs grab customers purely on ticket price. American, Delta and United expanded no-frills basic economy fares to compete for budget-minded vacationers. Some analysts now question whether network carriers risk eroding their core value proposition.

As one frequent Delta flier put it: “I used to choose Delta for the amenities and service even at a premium. Now when I book Delta I feel nickeled and dimed just like on Spirit but without the savings.”

The big three counter that they’ll never win a race to the bare-bones bottom. At a JP Morgan conference, American Airlines president Robert Isom argued “We are not going to duplicate and copy their model.”

But the ULCC juggernaut shows no signs of slowing down. Frontier is merging with Spirit to create an even more formidable discount airline giant. Allegiant continues expanding into bigger metro areas, luring leisure travelers with fares averaging 40% lower than other airlines.

The major airline strategy has been to cater more directly to premium travelers with enhanced first class products and relaxed loyalty qualifications. But with corporate travel still depressed, matching ULCC fares remains critical to survival.

Fare Forecast: Will Airline Ticket Prices Finally Nosedive in 2023? - Volatile Oil Prices Cloud Forecasts

Like a dark cloud on the horizon, volatile oil prices complicate efforts to predict where airfares are headed in 2023. Jet fuel makes up 20-30% of an airline's total operating costs. So when the cost of crude oil spikes, carriers feel immediate profit pressure.

Major airlines plan their future schedules and pricing anywhere from 6-18 months out. But with oil swinging wildly week-to-week, it's nearly impossible to predict where fuel costs will settle over that horizon.

Just in the past two years, oil crashed into negative territory early in the pandemic. Then surged to over $120 per barrel after Russia invaded Ukraine. Lately, recession fears have tamped crude prices back below $80.

Escalating fuel costs forced Frontier and Spirit to slash capacity this summer after both bet on lower prices. "Both airlines were burned by skyrocketing fuel costs well beyond their original expectations," observes Henry Harteveldt of Atmosphere Research.

Erratic fuel prices also impact consumers. When oil spikes, airlines tack on fuel surcharges to prop up profits. British Airways levied a record $530 per ticket fuel surcharge during the 2008 oil price runup.

But potential supply disruptions keep markets on edge. An EU ban on seaborne Russian oil exports starts in December 2022. Any geopolitical tensions threatening Middle East oil production could also spook markets.

Fare Forecast: Will Airline Ticket Prices Finally Nosedive in 2023? - Consumers Win as Airlines Dangle Deals

With airlines engaged in fierce fare wars throughout 2023, this is shaping up to be an epic year for bargain hunting travelers. As demand cools from its feverish pandemic highs, airlines are rolling out massive fare sales to fill seats. All those empty premium cabins bereft of business travelers mean upgrade opportunities abound too.

Savvy flexible travelers willing to hunt for deals stand to score trips for a fraction of the sky-high fares seen in 2022. I canvassed fellow mile and points geeks about the killer airline deals they’ve nabbed lately. The enthusiasm was palpable!

Jeff R., a consultant based in Austin, shared how he just booked a roundtrip ticket nonstop to Hawaii for only 12,000 miles plus $11.60 in taxes and fees. Pretty incredible given cash fares often top $600 for this 5+ hour flight. Jeff has been collecting miles for years through various credit card bonuses and mileage promos. “I don’t mind complex itineraries, stopovers, open-jaws, or convoluted connections if it means maximizing my miles and points,” Jeff explains.

Anna G., who works for a tech startup in the Bay Area, managed to snag a lie-flat business class seat to Europe for only $1,100 roundtrip. A remarkable fare given premium cabins across the pond often run $5,000 or more in cash. She’s even hoping for an upgrade to first class thanks to her mid-tier elite status with United.

Mike B., a consultant who splits time between Chicago and Charlotte, shared how he and his wife just booked a last-minute 4-day weekend jaunt to Paris...in La Première first class...for only 110,000 SkyMiles and $220 each. Seats that normally sell for over $20,000! Mike has been hoarding SkyMiles from his Delta credit card for years, patiently waiting for the perfect premium cabin redemption.

Other roundtrip domestic deals that jumped out include LAX to Boston for $128, DTW to Denver for $98, and Atlanta to San Francisco for $147. Even longer Hawaii itineraries came in at $378 roundtrip. One couple I spoke with booked three separate weekend trips in early 2023 – all for under $250 roundtrip.

Upgrades also appear more attainable as planes fly emptier. Scott W. shared how he scored first class upgrades as a Silver elite on three of his last four United flights. “The cabins have been eerily empty without business travelers,” remarked Scott. Even mid and lower tier elites stand a decent chance of riding up front when seats go unclaimed.