May 30, 2012
Between July 2008 and July 2009, commercial air passenger fares declined sharply. The Import Air Passenger Fares Index, which tracks changes in the fares paid to foreign carriers by U.S. residents, declined 20.1 percent. The Export Air Passenger Fares Index, which tracks changes in the fares paid to U.S. carriers by foreign residents, declined 21.8 percent. The decline in prices was the steepest since the indexes were first published and was similar to the movement in the Consumer Price Index (CPI) for domestic airline fares.
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The main drivers of the decrease in import and export airfares were lower fuel prices and slackening demand.
At the start of the last decade, the cost of jet fuel accounted for roughly 20 percent of airline operating expenses. By mid–2008, fuel accounted for up to 40 percent of operating expenses. However, the contraction of the global economy in late 2008 led to a significant drop in fuel prices. The spot price of jet fuel decreased 60 percent between May 2008 and May 2009. As a result, air carriers were able to lower airfare prices in an effort to counteract the simultaneous dropoff in travel demand.
From mid–2008 to mid–2009, the demand for air travel declined as a result of the global economic recession. During the recession, fewer U.S. citizens purchased plane tickets for travel abroad; annualized U.S. citizen international departures started declining in June 2008. Soon after June 2008, the broader world economy went into a recession, which led to a decrease in the number of international citizens flying into the United States. According to the International Air Transportation Association (IATA), global demand decreased 3.5 percent in 2009—the largest yearly global demand decline since World War II. In an effort to remain competitive, air carriers were forced to cut prices.
Following the recent recession, airfare prices began to rebound in late 2009. From May 2009 to May 2010, import airfares increased 23.3 percent, while export airfares rose 22.0 percent. Along with the economic recovery came a rebound in demand for air travel. IATA demand statistics reported that international air passenger traffic increased 8.2 percent in 2010. By December 2010, air travel volumes were higher than the prerecession highs.
Over the past 15 months, airfare price increases have been less extreme than during the recovery. Air passenger fares rose 5.2 percent for imports and 9.2 percent for exports between December 2010 and March 2012. In 2011, air travel demand continued to rise, increasing at a rate of 5.9 percent over the year.
Data for this article are from the International Price program. Import and export price data are subject to revision in each of the three months after original publication. To learn more, see "International air passenger fares shrug off the recession," by Edwin Bennion and Jon Ruder, in an issue of Beyond the Numbers published in May 2012.
Bureau of Labor Statistics, U.S. Department of Labor, The Economics Daily, International air passenger fares on the Internet at http://www.bls.gov/opub/ted/2012/ted_20120530.htm (visited October 31, 2014).
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