Summer travel to drop, but how will it affect prices?

Looks like all the news about airfare hikes, outrageous fuel prices, and airline intrigue may be convincing a lot of travelers to stay at home this spring and summer. The airlines reported a year-over-year drop in demand this April, the first such drop in more than year, and now both the AAA and Air Travel Transport Association (ATA) are predicting a drop in the number of passengers taking to the air this summer.

Thursday, May 15, AAA came out with its Memorial Day travel forecast, projecting that compared to last year, about 200,000 fewer travelers will be flying and 360,000 fewer drivers will embark on road trips of more than 50 miles. That’s the first time AAA has predicted a slowdown in Memorial Day travel since the start of the Iraq War in 2003. Not coincidentally, AAA notes that airfares for the holiday weekend are up 8 percent over 2007, and gas prices are 68 cents higher.

A few days earlier, the ATA looked into travel trends for the summer (June 1 to August 31) and said it expects about 2.7 million fewer passengers to fly this summer compared to last summer, a drop of about 1 percent. While the ATA tried to downplay this number, USAToday noted that this would be the biggest seasonal decrease since the summer after 9/11. Notably, the drop-off in traffic appears to be affecting domestic travel—most airlines have been adding capacity to international routes.

So, what does all this mean? Here are my thoughts:

• The airlines have been trying to cut domestic capacity and increase intentional service for a while (most domestic routes are unprofitable), so this current drop is falling in line with the airlines’ long-term capacity goals. However, in the past, the airlines have panicked when too many seats went unfilled and have offered sale prices, even though it hurts them financially. The size and speed of this current drop seems to be more significant than what the airlines expected, so I think they will offer more discounted domestic fares for summer travel. Definitely keep an eye on our airfare deals section, where we’ll post any new sales.
• Some analysts I’ve spoken with think a drop in the number of travelers will alleviate some of problems the airlines faced last summer, when high demand meant nearly every airline delay or cancelation would affect many more passengers than usual because there were hardly any open seats to give to displaced travelers. I’m skeptical about this because, on average, most planes will be still be 85 percent full due to the airlines cutting the frequency of service on certain routes.
• With fewer car travelers driving more than 50 miles over Memorial Day, there’s a chance you may find accommodation deals in some of the country’s more remote destinations, such as national parks. However, this same factor will likely boost traffic to regional tourism destinations (e.g. Cape Cod for the Boston area; Santa Barbara for Los Angeles, etc.) so hotel prices may be higher and availability harder to come by in those places.