A combination of plummeting oil prices and weak traffic likely will prompt substantial reductions in airfares next year, according to a new outlook by AirlineForecasts.
Vaughn Cordle, chief analyst with the research and strategy consultancy, said average fares next year should fall between 7% and 10%, and possibly as much as 12%, depending on fuel prices and traffic trends.
Although some of the expected fare reduction is attributable to lower oil prices, the other key driver is reduced demand, especially from consumers beleaguered by shrinking home values, unemployment and other factors pinching their expenditures.
Cordle noted that home equity loans alone accounted for 4% of consumer expenditures annually for several years before being shut off as house prices declined.
The AirlineForecasts analysis indicates a strong correlation between fuel prices, which have been in sharp decline, and fares, said Cordle.
Traffic and load factors, which Cordle expects will be “horrible” in the fourth quarter of this year and the first quarter of 2009, are seen as placing considerable downward pressure on fares, especially when combined with cheaper fuel.
Cordle added that another likely result of weak airline traffic will be further capacity cuts next year.