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As Oil Plummets, Cheap Jet Fuel Means Better Travel Deals

Jan 20, 2016
Originally published on January 22, 2016 2:46 pm

As Iran prepares to pump even more oil into an already glutted market, that oversupply isn't just making gas cheaper for your car — it's also causing jet fuel prices to go down sharply. And that's now pushing airfares down, too.

"We're seeing about 14 to 15 percent lower this year than we have in the past," says Patrick Surry of Hopper, a popular travel smartphone app. Hopper, a startup in Cambridge, Mass., collects data on the minute-to-minute prices that airlines are offering on their tickets and helps consumers, Surry says, "understand when the best time is to buy their ticket."

He says he's not looking at last-minute business travel, but rather prices everyday people pay to, say, book a vacation in advance.

The federal government just released data on international travel also showing a 15 percent drop, the biggest calendar year decline in fares since the index was first published in 1987. On more competitive routes with discount airlines such as JetBlue, Spirit and Southwest in the game, the price drops are bigger.

George Hobica, who runs airfarewatchdog.com, says he's seen some very low fares recently. "Dallas to almost anywhere in the United States you can fly on certain days for $40 each way," he says. There are fares from San Francisco to Las Vegas for $67 round trip, he says. "And the reason they can afford to do that is because oil prices are going down."

Still, based on the math of how much jet fuel prices have dropped, Surry says airlines could still be passing on more savings to customers. But he says companies are keeping some of those profits for themselves.

And actually that's a good thing, at least according to the industry. "In this industry, given its history of boom and bust, if you have one very good year, you really need to take advantage of it and get your house in order," says John Heimlich, chief economist with the trade group Airlines For America.

Heimlich says the terrorist attacks of Sept. 11, 2001, and then the Great Recession, coupled with high fuel prices up until recent years, pummeled the airlines. Many were losing billions of dollars. So they've needed those extra profits to dig out of a really big hole. "Ten airlines combined including their merged partners over the last almost six years paid down $52.5 billion in debt," Heimlich says.

Meanwhile, he says, the airlines have been hiring more people, buying more planes and upgrading airport lounges, baggage handling systems — things they'd had to put off for years.

But for most people, the big question might still be this: If you want to take a vacation somewhere, say to Hawaii, is now the right time to buy tickets?

Using Hopper, Dara Continenza, who helps build the company's customer base, pulls up a price projection chart for a plane ticket from Los Angeles to Honolulu. Hopper's computers are taking those billions of data points from recent years to predict whether fares like this one will go up or down.

"Right now we're showing about $680, and we think that they're going to fall about $200 less than what we're showing now," Continenza says.

So Hopper's app is telling people, at least on this fare, now is a good time to play that game of chicken with the airlines and wait for the price to drop before you buy.

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There's a glut of oil on the market. It has driven down gas prices. But that's not the only thing it's done. Jet fuel costs are less too, and that translates into lower airfares. The U.S. government just reported the biggest price drop in international fares in nearly three years. And domestic fares are falling too. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: To find out what's going on with airfares, we went to a startup named Hopper. It makes a popular travel app for your phone. The company's headquarters is next to the MIT campus in a converted old brick industrial building.

PATRICK SURRY: We're here in Cambridge, Mass. in the Kendall Boiler and Tank building.

ARNOLD: So they used to actually make boiler tanks in here for heating?

SURRY: I guess so, yeah. You can still see some of the machinery up in the rafters here.

ARNOLD: Patrick Surry is the chief data scientist at Hopper.

SURRY: We built an app that helps consumers save money on airfare. Our mission in life is to help people understand when the best time is to buy their ticket. Should they buy it now or is it likely to go down in the future and you should wait?

ARNOLD: To do that, Hopper collects data on the minute-to-minute prices that airlines are offering on their tickets. So that is lots of data.

SURRY: We've got an archive of several trillion price points. We collect about 2 or 3 billion priced trips every day for markets all around the world.

ARNOLD: Surry says he's not looking at last-minute business travel but rather prices that everyday people pay to, say, book a vacation in advance. And for those fares...

SURRY: Well, airfares are trending down, as we're seeing about 14 or 15 percent lower this year than we have in the past.

ARNOLD: That's a big drop in prices. In fact, the federal government just yesterday released data on international travel showing a similar 15 percent drop - the biggest calendar-year decline in fares since the index was first published in 1987. And of course on more competitive routes where discount airlines such as JetBlue, Spirit and Southwest are competing, we're seeing even bigger price drops. George Hobica runs a website called Airfarewatchdog.

GEORGE HOBICA: Dallas to almost anywhere in the United States, you can fly on certain days for $40 each way. San Francisco to Las Vegas is $67 round-trip. And the reason they can afford to do that is because oil prices are going down.

ARNOLD: Still, based on the math of just how much jet fuel prices have dropped, Patrick Surry says that airlines could be passing on more savings to customers. But instead, he says airlines are keeping some of those profits for themselves. And actually, that's a good thing, at least according to the industry. John Heimlich is the chief economist with the trade group Airlines For America.

JOHN HEIMLICH: In this industry, given its history of boom and bust, if you have one very good year, you really need to take advantage of it and get your house in order.

ARNOLD: Heimlich says 9/11 and then the Great Recession coupled with high fuel prices up until recent years, all of that pummeled the airlines. Many were losing billions of dollars. And so they've needed those extra profits to dig out of a really big hole.

HEIMLICH: Ten airlines combined, including their merged partners, over the last almost six years, paid down 52.5 billion in debt.

ARNOLD: Meanwhile, he says the airlines have been hiring more people and buying more planes. OK, but if you want to take a trip to Hawaii, is now the time to buy the ticket?

DARA CONTINENZA: So this is a Hawaiian Airlines fare, and this is actually kind of what our algorithm shows.

ARNOLD: Back at the startup company Hopper, Dara Continenza has pulled up a price projection chart for Los Angeles to Honolulu. Hopper's computers here are taking those billions of data points from recent years to predict whether fares like this one will go up or down.

CONTINENZA: Right now, we're showing about 680, and we think that they're going to fall about $200 less than what we're showing now.

ARNOLD: So Hoppers app is telling people, at least on this fare, now is a good time to play that game of chicken with the airlines and wait for the price to drop before you buy. Chris Arnold, NPR News, Boston. Transcript provided by NPR, Copyright NPR.