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In the latest inflation report, an unexpected category has surged past even rising rents: airplane tickets. The Bureau of Labor Statistics reports airfares jumped 4.7% year over year in November, exceeding the 4.4% increase in rental costs that has been a key driver of persistent inflation.
The jump marks a significant shift in the industry’s pricing power. After skyrocketing by as much as 43% annually in the revenge-spending era of the COVID-19 pandemic, ticket prices soon began falling rapidly. Fares had negative price growth every month between April 2023 and August 2024.
Airlines are now actively working to reverse that trend by cutting routes to restrict supply. United Airlines (UAL+2.09%) has been especially aggressive in reducing capacity, moving ahead of its competitors to trim less profitable flights. However, analysts at Jefferies (JEF+1.52%) warn these efforts could backfire if economic conditions weaken.
“The risk lies in the macro debate of a hard versus soft landing, with concerns around consumer strength as credit balances climb, disposable income wanes post-stimulus era, and real earnings stagnate / slow on inflation outpacing wage growth,” they wrote in a note to clients. “This could draw wallet share away from air travel and into less discretionary areas.”
The strategy represents a sharp contrast to airlines’ approach during the pandemic recovery, when carriers rushed to add capacity as consumers, flush with government stimulus checks and eager to book trips after restrictions lifted, flooded back to air travel. When spending patterns began to moderate, airlines found themselves with excess seats they couldn’t fill at profitable prices.
Despite the recent fare increases, the International Air Transport Association notes that average ticket prices remain 44% below their levels from a decade ago. Still, the group projects global airlines will bring in a record $1 trillion in revenue next year.
