Airline Traffic and Prices

Last July a little over 66 million passengers traveled via plane within the US up from a little less than 62 million in 2015. With the summer fast approaching, one might wonder if we will have another robust travel season. This post describes how the strong demand for air travel has been driven by a steady decline in ticket prices. 

The graph above shows the cyclical component of the number of passengers on domestics flights in the US. (The graph including international flights is similar.) Not surprisingly the financial crisis depressed air travel, but the industry recovered well hovering around the trend from 2011 until late 2014. More recently, however, air traffic has hit a bit of a boom, driven, in most part, by a decline in ticket prices.

The graph above displays the cyclical component of tickets prices for domestic airline tickets. Since 2014 ticket prices have been consistently below trend, only recent showing signs of reversing course. This corresponds nicely to the above trend cycle in the number of passengers. Consumers are currently taking advantage of relatively low ticket prices, but the increased demand should increase pressure for a gradual increase in future ticket prices.