Canadian airfares could fall even lower this year due to slumping oil prices

Falling oil prices have made a dent on the cost for airlines to fuel up their planes, and in turn this has meant lower airfares for air travellers.

Data compiled by Montreal-based travel smartphone app Hopper indicates that Canadian domestic airfare is down 7.3 per cent compared to this time last year. International airfares in the country have also fallen by a more modest five per cent.

When the changes are measured in U.S. dollars, the drop is significantly larger at 20 per cent, which mirrors the decline in jet fuel prices and accounts for the lower operating costs as a result of the low Canadian dollar. Comparatively, in U.S. dollars, the decline in U.S. airfares is 15 per cent.

Airfares are typically lower in January due to the weakened demand after the busy holiday season, but slumping oil prices since fall 2015 have been a leading factor.

“Oil is now trading under $30 a barrel and the jet fuel is now under a dollar a gallon, which I believe is the lowest it has been since late 2003,” Hopper chief data scientist Patrick Surry told Vancity Buzz. “So fuel is way down, probably two-thirds or more on its price from a couple years ago.”

Lower air prices have also allowed airlines, particularly low-cost carriers, to engage with their competition on profitable routes.

“So what we see is that where there is a route that you’ve got more than one option, you’re seeing more significant price drops than in a market where you’ve only got one choice,” Surry added.

“It’s really the competition that encourages the airlines to pass on the savings that they’re getting from fuel rather than taking it as a profit. My expectation for Vancouver, given that it is a very competitive hub, both internationally and domestically… it’s likely to be among the leaders of where prices are falling in Canada.”

There will be a seasonal increase through the summer period, from June and July, before it begins to fall again. But Surry says he expects this year’s summer peak to be about 10 per cent lower than the same period last year.

“Prices will still be very competitive, and one thing we’re tracking is that we typically see the effect of the oil prices a couple of months after the price has dropped. We just had another big drop in the last few weeks in the price of fuel, so that may mean that prices will rise even less than we expect as we get into the summer.”