Airfares are edging lower as international travel is increasingly being discouraged by the Centers for Disease Control and Prevention.
Why it matters: The Delta variant of COVID-19, is casting a shadow over the economic recovery. A dip in airfares that had been surging could be a signal that consumers may pull back in the months to come.
Driving the news: On Wednesday, Southwest Airlines announced bookings have decelerated and cancellations have picked up this month, which it said "are believed to be driven by the recent rise in COVID-19 cases associated with the Delta variant."
State of play: While airplane tickets represent a relatively small component of what most Americans spend on, it’s been among the categories seeing the largest increases in recent months.
- That's because prices were unusually depressed a year ago. And supply has lagged demand as the economy reopened.
By the numbers: Airfares fell 0.1% month over month in July, according to the Consumer Price Index report out Wednesday.
- This comes after a 2.7% jump in June and a 7% surge in May.
- For context, prices are up 19% from July 2020 levels.
What they’re saying: "The recent degree of strength was unlikely to continue indefinitely, and today's report suggests the slowing may be happening a bit quicker than expected," TD Securities chief U.S. macro strategist Jim O’Sullivan tells Axios.
- JPMorgan senior economist Jesse Edgerton tells Axios that credit and debit card spending data signal a broad dampening in demand for air travel.
Yes, but: Edgerton also points out that airline fares are still about 10% below pre-pandemic levels.
- As such, prices are likely to climb again, but at a more moderate pace, Oxford Economics chief U.S. financial economist Kathy Bostjancic tells Axios.
What to watch: It will be interesting to see if the Delta variant affects tourism-driven local economies and other parts of the travel industry, such as lodging, where prices spiked 6.8% in July.