Travel Prices Are Coming Back to Earth
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Skyrocketing airfares earlier this year and recent headlines about persistent inflation may be discouraging potential travelers. Yet recent data suggest that prices for hotels, air travel and rental cars are softening this autumn. And the U.S. dollar’s continued strength has driven down international travel costs.
The Consumer Price Index report released in September showed overall prices continuing to climb, which sent stocks tumbling. But underneath these wider trends sat a nugget of good news for consumers: Travel prices moderated.
Some of this trend is seasonal — prices usually drop in the fall and winter. And most travel costs, especially rental cars, remain higher than they were before the pandemic. Still, the downward pressure bodes well for travelers looking to book a trip in the coming months.
Timing is everything
According to Google, searches for “cheapest airline tickets” skyrocketed by 240% between April and August, reflecting the pinch travel consumers felt as prices rose. And while finding cheaper flights isn’t as simple as booking on the right day of the week, some historical clues can help decide when to buy upcoming travel.
Two major factors can affect the cost of any given flight itinerary: The larger price trends at play and the timing of when the travel is booked. Many travelers assume that booking earlier is usually better, but the data doesn't bear this out.
Google Flights compared five years of historical data and found that domestic airfare prices tend to be lowest anywhere between 21 and 60 days before departure. The timing is even shorter for winter holiday flights, where booking just 22 days before departure yields the lowest average fares.
With these factors combined, it could make sense to hold off on booking holiday travel. Overall prices could continue their downward trajectory as inflation eases, and historical trends suggest that prices tend to drop until only a few weeks before departure.
Of course, like everything macroeconomic this year, actual results may vary.
Leverage the dollar
Another bright spot for international travelers: The dollar has strengthened against many foreign currencies throughout the year. This may not affect flight prices much, but it will reduce the cost of everything from hotel rooms to car share rides for those heading abroad.
Not every foreign country — and currency — is trading equally favorably. The Mexican peso is almost unchanged relative to the dollar compared with the previous year, while the Japanese yen is considerably weaker. One U.S. dollar bought 23% more Japanese yen in August of 2022 than in the previous year.
If currency exchange rates remain stable (a big if), a traveler to Japan would receive an effective 23% discount on all purchases made in Japan, while a traveler to Mexico would receive none. This provides a strong incentive for U.S. vacationers to choose exchange-rate-friendly destinations.
Just the beginning
Travel is still not cheap, but prices are slowly descending from their eye-watering heights.
The latest CPI data indicate that rental cars are 46% more expensive than they were before the pandemic, compared with a shocking 70% markup over pre-pandemic rates in April.
Many factors suggest that this trend will continue. Jet fuel prices, while still high, tend to follow oil prices, which seem to be dropping. And the pent-up demand from “revenge travel” could abate as temperatures cool.
Still, airline and hotel staffing shortages continue to wreak havoc on the supply side of the equation, and oil prices, which directly affect airfare, could always change.
At the very least, budget-conscious travelers can enjoy a bit of breathing room for now.
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