Plane Ticket Prices Are Dropping; Here's Why That May Not Be Good

Despite the jaw-dropping ticket prices to many popular European cities some may have seen on Booking.com  (BKNG) - Get Free Report or Expedia  (EXPE) - Get Free Report this summer, the wider arc of plane ticket prices has been moving downwards.

The difference appears strongest when it comes to domestic travel -- data from price-tracking website Hopper found that the average domestic plane ticket fell 18.9% between June 2022 and 2023. When looking at pure prices, this is a difference of a $410 average in May 2022 and $275 now. 

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Even during the popular travel period over Fourth of July, the average domestic ticket cost just $301 -- a 27% drop from the $412 seen during the same period in 2022.

Here's Why Low Ticket Prices Aren't As Great As You Think

After months of heavy inflation and a looming recession, this is very good news for anyone who's been pining for a trip -- one NerdWallet  study shows that 23% of Americans did not take one in the summer of 2023 due to cost.

But both for airlines and anyone who invests in their stock, the news is not nearly so rosy as low prices will inevitably seep into share performance. As first reported by CNBC, American Airlines  (AAL) - Get Free Report, Southwest Airlines  (LUV) - Get Free Report and Alaska Airlines  (ALK) - Get Free Report are all anticipating slower revenue growth amid lower demand.

The rush of people taking long put-off trips have, so far, helped airplane stocks soar fare above the S&P 500 TICKER -- while the latter is up 12.67% year-over-year, the NYSE Arca Airline Index rose by 23.69% during the same time period and 42.05% since the start of 2023.

But when looked at over the last month, the same index is down by 4.84% -- a move that some industry leaders said is driven by the downward push from domestic ticket prices.

The same Hopper data shows that the average international plane ticket outside the U.S. cost $958 in June 2023. This is still an 8% increase from 2022 and 23% more expensive than it was in 2019.

'Domestic Leisure Fares Have Started To Come Down,' Says Airline CEO

"As we approach the rest of the year and beyond, it is clear our environment is evolving as domestic leisure fares have recently started to come down from their peaks," Alaska Airlines CEO Ben Minicucci said in a Wednesday earnings call.

Southwest recently said it expects its revenue to drop by up to 7% in the current quarter while Alaska Airlines also predicts third-quarter revenue growth of between 3% and 0%.

While high rates of post-pandemic travel have helped most airlines report strong earnings throughout the end of 2022 and early 2023, the drop is now coming head to head with other longstanding problems all chipping away at profits -- an industry-wide staffing shortage, in particular, is preventing airlines from running enough flights to meet demand.

American Airlines, United Airlines  (UAL) - Get Free Report and Delta  (DAL) - Get Free Report have all recently cut back certain less popular routes in order to minimize the number of planes flying half-empty.

"We had to come out of the pandemic in quick order and it's taking time to catch up," American Airlines CEO Robert Isom said in a recent interview given to Airlines magazine. "In 2021 and 2022, we had to make sure we were staffed appropriately for the level of operations we wanted to achieve. We studied 2022 extensively, especially during the summer, to make sure we could meet customer expectations."