Airline fares continue to slide in January CPI

Airline fares fell 3.2 percent in January, extending the decline of 2.3 percent in December and more than offsetting the 3.5 percent increase in the November Consumer Price Index for All Urban Consumers, according to the Bureau of Labor Statistics (BLS), U.S. Department of Labor. The dip is in contrast to the overall CPI, which increased 0.3 percent for the month on a seasonally adjusted basis.

Astute observers of the industry as well as frequent flyers know that the CPI's airline fare index doesn't tell the whole story.

Airlines continue to focus on increasing ancillary revenue, which carries an important caveat. While the BLS's calculations of airline fares include an allowance for checked bag fees, the BLS does not include other ancillary charges which represent an ever-larger percentage of airlines' overall revenue.

Although the three major U.S. carriers announced in September 2020 that they would eliminate the fees for changing tickets, other nickel-and-dime charges remain, and the carriers continue in lock step. While American Airlines (NASDAQ:AAL) and Delta Air Lines (NYSE:DAL) quickly followed United's (NYSE:UAL) lead in abolishing change fees earlier this year, in September 2018,AA, Delta, United and jetBlue (NASDAQ:JBLU) all raised fees for checked bags from $25 to $30 for the first bag, and from $35 to $40 for the second. While baggage fees are included, other similar nickel-and-dime charges are not tracked in the airline fare index.

The COVID-19 pandemic continues to put downward pressure on prices.  Over the last 12 months, the index for airline fares declined 21.3 percent. 

The gasoline index continued to increase, rising 7.4 percent in January and accounting for most of the seasonally adjusted increase in the all items index. Although the indexes for electricity and natural gas declined, the energy index rose 3.5 percent over the month. The food index rose slightly in January, increasing 0.1 percent as an advance in the index for food away from home more than offset a decline in the index for food at home.

The index for all items less food and energy was unchanged in January. The indexes for apparel, medical care, shelter, and motor vehicle insurance all increased over the month. The indexes for recreation, used cars and trucks, airline fares, and new vehicles all declined in January.

The all items index rose 1.4 percent for the 12 months ending January, the same increase as for the period ending in December. The index for all items less food and energy also rose 1.4 percent over the last 12 months, a smaller increase than the 1.6-percent rise for the 12 months ending December. The food index rose 3.8 percent over the last 12 months. In contrast to these increases, and despite rising in recent months, the energy index declined 3.6 percent over the last year, the BLS said in its February 10 statement.

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