Airfare is up, but Labor Day travelers are flying anyway

The cost of air travel is soaring while consumers aren’t seeing much growth in their disposable income — but that isn’t deterring an estimated 2.65 million American leisure travelers who are flying over the Labor Day weekend, the most since 2007, according to the travel organization AAA.

AAA forecast that this weekend will mark a 1 percent increase in leisure air travel compared to last year. Expedia reported an even-larger jump in demand, saying that Labor Day travelers had booked 20 percent more domestic and international air tickets through its site than they did last year.

The increased demand for holiday weekend flights concludes a strong summer for air travel, even as airfare continues to rise and the consumer recovery from the recession remains slow.

Airline ticket prices are notoriously volatile, but they have been steadily on the rise recently.Air travelers shelled out an average of $88 more for a domestic round-trip flight in the first half of 2014 than they did during the same period four years before, according to data from Airlines Reporting Corp.

And they’re not just paying the sticker price of the ticket. On average, air travelers paid $9 more in ancillary costs — baggage fees, on-board food and beverages, frequent flyer deals, and other costs — for each of their trips in 2013 than they did six years before, according to data from IdeaWorks Co.

“Price increases haven’t hampered travel at all,” said Virginia Nicholson, a data analyst with the travel site Hopper. “People are patient and willing to have some flexibility about when they fly” — behavior, Nicholson said, that has allowed them to find good deals.

But for some travelers, flexibility doesn’t necessarily assure a low price.

One Labor Day traveler, Kim Sieber, was at Reagan National Airport Friday with her husband John for a flight to Charleston for her niece’s wedding. The Siebers live in Warrenton, Va., so they would have preferred to fly out of Dulles International Airport, but they flew from National instead to save money on airfare. They bought one ticket using points, and spent about $300 for the other.

The price was higher than she’d hoped to pay, but Sieber was willing to fly anyway. “It’s a wedding, and I need to go,” she said.

AAA said it will cost an average of $219 for consumers who bought their round-trip tickets in advance to fly the 40 most popular domestic routes this weekend. That’s up $5 from last year, in line with the 2 percent increase in the consumer price index Consumer Price Index over the same period.

Amid this overall price hike, some leisure travelers have been hit particularly hard. Take a trip that would be atypical for a business traveler: a roundtrip flight from a Washington, D.C.-area airport to LAX that included an overnight Saturday stay. In the first half of this year, the average price for this trip was $436.60 — meaning that a family of four in the District could expect to pay more than $1,700 in airfare for a vacation to California, not even including ancillary fees. That figure is up 7 percent from the same period last year, according to Airlines Reporting Corp.

“The middle class is being squeezed,” said Charlie Leocha, director of the consumer advocacy group the Consumer Travel Alliance. “The person who ends up with the short end of the stick is the leisure traveler and the traveler who doesn’t travel very often.”

Jean Medina, a spokesperson for the industry group Airlines for America, said that airline ticket prices remain historically low, blaming government taxes and regulations for recent rising prices.

“Air travel remains a bargain,” said Medina in an e-mail. “The great news for consumers is that they have a choice of carriers / business models, ensuring that there are options for even the most price-sensitive travelers.”

The rise in demand for air travel over the Labor Day weekend is part of a wave of strong consumer spending in some sectors of the economy. Consumer confidence this month is at its highest level since October 2007, according to the Conference Board, a consumer industry group.

Yet Americans are opening their wallets at a time when their paychecks aren’t getting much larger. In the second quarter, real personal consumption expenditures increased 2.5 percent, while real disposable income grew by 1.0 percent, according to the Commerce Department.

AAA attributed the strong demand for Labor Day travel to consumers’ willingness to take on debt.

“This year, Americans are more optimistic about their financial situation,” AAA Chief Operating Officer Marshall L. Doney said in a press release. “Consumer spending continues to outpace disposable income, indicating that Americans are comfortable using their credit cards to take one last summer vacation this year.”

Meanwhile, airlines are making more money than they have in years–thanks more to business travelers than to families going on vacations. 

Last month, American Airlines, United Airlines, and Delta Air Lines all reported record profits for the second quarter, a remarkable turnaround for three carriers that have struggled with major bankruptcies and mergers in recent years. Other carriers also posted impressive financial results.

Tammy Romo, the chief financial officer of Southwest Airlines, said in the carrier’s second-quarter earnings call in July that “strong demand for travel, both business and leisure” made Southwest’s airplanes more crowded than ever before in the second quarter.

But while both business and leisure travelers are driving strong traffic, business travelers are generating more money. They tend to book pricey flights on their companies’ dime just a few days in advance, compared to bargain-hunting leisure travelers, who often purchase their tickets months ahead of their trip.

That’s because corporations are better positioned to spend than leisure travelers. Joseph DeNardi, an airlines analyst with Stifel Nicholaus, noted that strong corporate earnings have outpaced a slow consumer recovery in the post-recession economy, driving a healthy demand for business travel while consumers struggle with slow wage and disposable-income growth.

“To me, that indicates that the business travel side of it is more the driver of what’s benefiting the industry from a pricing perspective,” DeNardi said. “I think the airline industry has done well the past few years despite a soft recovery from the consumer side.”

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