These days, the only thing that’s certain is uncertainty.
Almost a year into the pandemic, travel remains in flux: New testing requirements for international travel are coming, and the airline industry continues to limp along. But we’re also seeing cash-hungry airlines slash airfare for flights worldwide to some of the lowest prices we’ve ever seen for travel out into late 2021. Whether it’s a quick domestic trip or a flight abroad late this year, flight prices have never been lower.
But what about when the pandemic ends and life starts to return to normal?
What will the future bring for the new players in the game who were barely scraping by a couple of months ago? What about the empires of the skies that were breaking all-time highs on their balance sheets? And what does that all mean for the flight prices in the future?
Supply and Demand
One thing is clear: Demand for travel is down.
As with all things, one of the biggest factors behind flight prices is the simple law of supply and demand. Demand remains way down, so airlines have cut the supply of flights until that demand returns. Through winter, airlines continue to drop routes and cut frequencies left and right. For months, airlines were running at just 20% of their normal operations – or less. While that has slowly returned, it’s nowhere near back to normal because travel demand remains low.
When the pandemic fades and the economy (hopefully) gets moving again, that demand will rebound. But how quickly?
It won’t happen overnight. It will take years for travel to return to its pre-pandemic levels. Business travel has been critical for airlines to churn out record profits, but that may never fully return as some businesses permanently adopt the Zoom meetings and phone calls that have become the new normal.
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As airlines gauge this recovery, they’ll slowly ramp back up the supply of flights, too. It’s a recipe for some uncertainty of what flight prices may look like on the other side of coronavirus.
Even with a fraction of the flights they had during the travel boom, airlines may struggle to fill seats. They may be eager to show investors they can fill up planes and pull in revenue. And they’ll want to convince travelers who are wary of getting back on a plane to put their doubts aside. Low fares are an easy way to do all that.
When the coronavirus pandemic first upended travel, we saw airlines slash fares to get more travelers on planes. They’re still doing so today as a way to scrape up whatever ticket sales they can find.
And it’s safe to assume they’ll do the same once it’s over. That means we think you can count on some astonishing sales in the future.
Low-Cost Competition Will Drive Flight Prices After COVID-19
If supply and demand is the principle behind airfare, competition between airlines is the gamechanger.
The airline industry is cutthroat. Every year, we see new players enter and exit the game. And in the meantime, airlines are constantly targeting their competitors, offering dirt-cheap prices to undercut each other in hopes of winning more customers. The connection between competition and price is undeniable.
Low-cost airlines are a prime example.
WOW Air came out of the gates hot with some of the lowest pricing to fly between the U.S. and Iceland, with flights under $50 each way. Norwegian Air and TAP Air Portugal have made their name with low fares across the Atlantic but continue to struggle. And the list goes on.
These budget carriers have driven flight prices to Europe down to record lows in recent years – as low as $300 round-trip (or even less.) Sure, you can snag a cheap flight on one of these barebones airlines. But they’ve also forced major airlines like Delta, American, United, and their international partners to compete on price, too. And that’s a win for consumers. Without that competition from Norwegian, the pressure on those bigger carriers is gone.
This is also clearly reflected on domestic airfare in the U.S. With Sun Country, Sprit, and Frontier leading the way by continuing to markdown already cheap routes, legacy carriers are forced to follow suit. There have never been cheaper flights to close-to-home destinations.
The future of low flight prices hinges on lots of competition between airlines, especially the survival of these low-cost carriers. And they were already struggling before coronavirus.
Some airlines have already fizzled out due to coronavirus, and more are sure to follow. Others are entering bankruptcy and an uncertain future. We can only hope that the vast majority of airlines still have a pulse when the dust settles.
The Price of Oil
Jet fuel is one of the biggest costs for each and every airline. It’s another huge factor in the price of travel. And earlier this year, it dropped like a rock. It has made a slow recovery but still is hovering around very affordable prices.
In the early stages of the pandemic, the price of oil dropped to lows not seen in more than 20 years. While it bounced back closer to the norm, it’s still fairly cheap – at least in historical terms.
Graphic courtesy of Daily FX.com
That’s little comfort to airlines now, who aren’t flying nearly enough to capitalize on the low prices. But if these low oil prices hold until travel rebounds, it’s a potential catalyst that will pull down airfare with it.
Predicting airfare is more art than science. It can be unpredictable, given the puzzling sales we see from airlines day after day, year after year. Cash grabs, mistake fares, flash sales, and fare wars can spring up at any moment.
There are bargains to be had now for future travel. And given all these factors, we’re betting there will be even more bargains at the other end of this pandemic, too.
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