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Air Fares

• What is the Air Travel Price Index?
• What does the Air Travel Price Index measure?
• Does the Air Travel Price Index show how much travelers pay for air travel?
• How is the Air Travel Price Index used?
• What airline flights does the Air Travel Price Index cover?
• How do I read or interpret an Air Travel Price Index value?
• How are the Air Travel Price Index fare data collected and reviewed?
• How is the Air Travel Price Index calculated?
• How are taxes treated in the Air Travel Price Index?
• What area indexes are published, and how often?
• How do the ATPI series differ from air travel price index series currently published by BLS?
• Why aren’t the indexes the same as the average fare (or "yield") numbers computed by the Office of the Secretary of Transportation?
• Are the ATPI estimates included in this release "official” BTS data products?
• Are the ATPI estimates revised after they are published?
• How are Domestic Average Fares calculated?
• How does the Domestic Average Fare differ from the Air Travel Price Index?

What is the Air Travel Price Index?
The Air Travel Price Index is a quarterly measure of change in airfares since the first quarter of 1995. The index is based on fares paid by travelers and draws its data from the Passenger Origin and Destination (O&D) Survey. Through this survey, BTS collects information from the airlines on a 10% sample of airline tickets. Because of changes in O&D Survey reporting procedures during 1997 and 1998, some ATPI series may show spurious changes during this period.

What does the Air Travel Price Index measure?
The index measures change in the cost of air travel (excluding charter air travel) from the base period, the first quarter of 1995. Only prices charged by domestic carriers are covered in the index. There are three primary ATPI series:

• The Domestic Origin ATPI measures change in the cost of itineraries originating in the United States, whether the destinations are domestic or international.
• The Foreign Origin ATPI measures change in the cost of itineraries with a foreign origin and a U.S. destination.
• The Full-Scope ATPI combines the Domestic and Foreign-Origin itineraries.

Does the Air Travel Price Index show how much travelers pay for air travel?
No. The index reflects only the quarterly change in cost measured against the first quarter 1995 base.

How is the Air Travel Price Index used?
The ATPI is used to track changes in the prices paid for air travel. The three primary ATPI series (see Question 2 above) allow examination of national and international trends in airfares. The city level indexes permit analysis of the effects of local airline industry developments including new carrier entrants, the departure or downsizing of established carriers, changes in airline marketing plans or pricing structures, and movements in the local economy. The ATPI values in this release are not adjusted for seasonality, so some movements in the series are due to seasonal variations in airfares.

What airline flights does the Air Travel Price Index cover?
The ATPI is based on changes in the price of itineraries, that is, round trips or one-way trips for which no return trip is purchased. The Full-Scope ATPI covers all itineraries that include at least one stop at a U.S. airport.

How do I read or interpret an Air Travel Price Index value?
Think of the ATPI as a yardstick against which fluctuations in commercial air travel prices are measured. The index uses the first quarter of 1995 as the reference point (expressed as the number 100) against which all subsequent quarterly prices are measured. ATPI values below 100 represent overall “cost of flying” levels less than those in the first quarter of 1995, while values above 100 represent cost of flying levels that exceed those of the first quarter of 1995. Through relatively simple calculations, we can use the ATPI levels to compute percentage changes in overall fare costs between any two quarters in an ATPI series.

Example: Suppose we wish to know the percentage change in overall fare levels for itineraries originating in the New York metropolitan area between the second quarter of 2001 and the second quarter of 2002. The ATPI value for the second quarter of 2001 is 120.15, and the value for the second quarter of 2002 is 113.04. Thus we may compute the percentage change as follows:

Difference in ATPI Values from Quarter 2, 2001 to Quarter 2, 2002:
113.04 – 120.15 = –7.11.

Proportionate Difference from Quarter 2, 2001 to Quarter 2, 2002:
–7.11/120.15 = –0.0592.

Percentage Difference from Quarter 2, 2001 to Quarter 2, 2002:
–0.0592 X 100% = –5.92%.

We therefore conclude that the overall cost of flying out of the New York metropolitan area decreased by about 5.92% between the second quarter of 2001 and the second quarter of 2002.

How are the Air Travel Price Index fare data collected and reviewed?
The Bureau of Transportation Statistics receives data from the airlines on a 10% sample of itineraries flown. Each ticket sold is assigned an identification number, and if this number ends in 0, the ticket is in the sample. The reported data include fare, itinerary information (sequence of airports), class of service, and other characteristics of the ticket. BTS’ aviation information specialists review the data for quality and accuracy before they are used in ATPI computations. For more information, see the Technical Notes.

How is the Air Travel Price Index calculated?
Unlike many other price index estimates, the ATPI is not based on a fixed "market basket” of air travel services. Rather, all of the data from the Passenger Origin and Destination (O&D) Survey are fed into the estimation system each quarter, and this collection of itineraries varies from one quarter to the next. For price comparison purposes, itineraries flown in each quarter are "matched up” with very similar itineraries flown in other quarters. A Fisher index formula is then used to compute aggregate index estimates such as those that appear in this release. For more information on the estimation method, see the Technical Notes.

How are taxes treated in the Air Travel Price Index?
The fares reported in the O&D Survey include taxes and airport user fees, so the ATPI values reflect changes in tax and fee rates as well as changes in fares received by the airlines.

What area indexes are published, and how often?
Each quarter, BTS publishes the three primary ATPI series described under Question 2, above. BTS also publishes indexes for major metropolitan areas and for other selected groupings (e.g., types of hubs, leisure destinations), which differ from quarter to quarter. BTS also publishes indexes for the following 85 cities:

How do the ATPI series differ from air travel price index series currently published by BLS?

• Prices Included in the Index Calculations. The Bureau of Labor Statistics (BLS) currently publishes both a Consumer Price Index (CPI) and a Producer Price Index (PPI) for airfares. The CPI measures changes in the prices paid by consumers for airline trips, including taxes and any distribution costs not received by the carriers (e.g., travel agents’ fees), while the PPI measures changes in revenues received by producers of airline trips. The CPI includes trips purchased from foreign carriers, while the PPI excludes these. The ATPI series presented here are similar to the BLS CPI series in that prices include taxes paid as well as fares. Distribution costs, however, are not included and, due to legal restrictions on use of the Passenger Origin and Destination (O&D) Survey data, the ATPI series currently incorporate only prices reported by domestic carriers.
  One of the key differences between the ATPI and the BLS indexes is the ATPI’s inclusion of special discount fares (e.g., internet specials, credit card discounts, frequent flyer awards), which are not reflected in the fares available from the SABRE system, a reservation system used by travel agencies. ATPI fares also include bulk fares, e.g., tickets purchased by travel agencies for resale in packaged tours.
• Index Formula. Another important difference between the BLS indexes and the ATPI lies in the target index formulas used. The BLS PPI for airfares is based on a Modified Laspeyres formula, while the CPI employs a "hybrid” Jevons/Modified Laspeyres formula. The ATPI estimator, by contrast, targets a Fisher index. For a discussion of alternative index formulas, see, for example, Fisher (1922), Diewert (1987), or Moulton (1993). For more information on price index concepts and design, see Schultze and Mackie (2002).
• Reference Period. The ATPI series also differ from the official BLS index series in their reference period definitions. From the current O&D Survey data, we can compute only quarterly indexes, and the reference quarter is the quarter in which the airline ticket was used for travel.¹ The BLS PPI and CPI are monthly, and BLS collects prices of tickets sold (not necessarily used) during the reference month.
• Scope. The scope of the ATPI is slightly wider than that of the BLS airfare indexes. The BLS CPI and PPI cover only trips that originate in the United States, while the Full-Scope ATPI covers trips originating in foreign countries, provided they have a domestic portion.

Why aren’t the indexes the same as the average fare (or "yield”) numbers computed by the Office of the Secretary of Transportation?
Both the ATPI and the average fare numbers are computed from the BTS Passenger O&D Survey data, but they’re designed to measure different phenomena. In the average fare computations, fares paid for different trip routes on different carriers are simply combined into overall averages. Changes in these averages do not necessarily reflect price changes; they are driven primarily by changes in the collection of airline trips purchased in different time periods. Thus the average fares may, for example, show dramatic shifts even when the array of prices facing the consumer remains relatively constant. A price index, by contrast, is designed to isolate changes in price for services that are essentially identical, e.g., the exact same trip route flown on the same carrier in different time periods. A large body of theory supports the use of the Fisher index (see above) for this purpose.

Are the ATPI estimates included in this release "official” BTS data products?
No. The estimates in this release were computed for research purposes.

Are the ATPI estimates revised after they are published?
Yes. Periodically, BTS recalculates ATPI estimates for previous quarters, incorporating data that air carriers have submitted late. Most of the changes in the estimates are negligible. When substantial changes appear in the estimates for a particular quarter, the revision is noted and discussed in the ATPI release.

How are Domestic Average Fares calculated?
Average Fares are calculated using data from the quarterly Airline Origin and Destination Survey (DB1B) for domestic-only itineraries. Any itinerary that includes one or more foreign airports is dropped. An itinerary is a round-trip or a one-way trip for which no return ticket is purchased.
The Domestic Average Fare for each ticket includes the actual fare, federal taxes, airport passenger service charges, and U.S. Dept. of Homeland Security fees. The average does not include bulk fares.
To calculate Domestic Average Fares:

1. Fares for complete domestic itineraries are summed by origin airport.
2. Passengers are summed by origin airport.
3. Revenues and passenger counts for Bulk Fare records are removed.
4. The sum of all revenues is divided by the sum of all originating passengers for each airport to give an Average Itinerary Fare for that airport.

See the DB1B ticket database http://www.transtats.bts.gov/Fields.asp?Table_ID=272 for additional historic Domestic Average Fare data.

How does the Domestic Average Fare differ from the Air Travel Price Index?
The Air Travel Price Index (ATPI) and the Domestic Average Fare are different measures of the price paid by airline travelers, and can be used to complement each other.
ATPI is a precise statistical measure of fare level changes. It measures the change in fares charged by airlines from quarter to quarter. ATPI is calculated from price changes in thousands of individual specific passenger routings and service levels where no other factor but price changed. In the case of ATPI decreasing for a city or airport, decreases in airline fares caused that change.
The Domestic Average Fare for a city or airport is derived from a calculation where the prices paid for all tickets is divided by the number of all passengers. A quarter-to-quarter decrease in the Domestic Average Fares could indicate a decrease in the actual fare level, but it could also mean fewer passengers flying the longer-haul segments, or more passengers flying shorter-haul segments, or passengers switching from higher service level (fully refundable) tickets to lower service level (restricted) tickets.
When the average fares decreases for a city or airport, airline fares may have actually decreased. Alternatively, they may not have decreased but other changes may have taken place that produce lower average fares. Fewer passengers may be flying long-distance flights. More passengers could be flying short-distance flights. More passengers may have discovered, or now qualify for, lower but unchanged fares that were always available to at least some passengers. Any of these factors could produce a lower average fares. For a comparison of average fares based on distance traveled, see the Consumer Air Fare Report.
Domestic Average Fare changes are usually the result of not just one but a number of factors. The ATPI is an index of actual airline fare changes.

A summary of factors that change ATPI and Domestic Average Fares

¹ If an itinerary straddles multiple quarters, it is counted in the quarter in which the first ticket in the itinerary is used.