How BLS Measures Price Change for Airline Fares in the Consumer Price Index

Introduction

The Consumer Price Index (CPI) has included Airline Fares as a component of the Public Transportation index since December 1963. The Public Transportation index is published in all CPI publication areas on each area's publication cycle. The Airline Fares index is published monthly at the U.S. level and is also seasonally adjusted.

Eligible for pricing are all regularly scheduled domestic and international commercial airline trips on certified carriers departing from each of the 87 cities in the CPI sample. For the selected cities that do not have a qualifying airport, the nearest city with a qualifying airport is designated as the city of departure.

Excluded from pricing are trips in helicopters, trips on intra-Alaska carriers, and trips designated as business travel.

Relative Importance

The relative importance of an item category is its percent of the CPI weight as of December of the most recent year. The airline fares index relative importance of 0.721 (Table 1) signifies that it represented 0.721% of the All Items index as of December 2007.

Table 1: Relative Importance of Public Transportation components of the CPI for All Urban Consumers (CPI-U): U.S. city average, December 2007

Sample selection

BLS selects approximately 1100 observations each month for its airline fares index. This sample represents the non-business airline travel of the U.S. urban population.

In each of the 87 CPI pricing areas, a sample of trips is selected for pricing using those cities as the points of origin. The specific trips to be priced are selected with probability proportional to the value of each qualifying ticket included on the U.S. Department of Transportation (DOT) data bank.

DOT data contain 10 percent of tickets sold by certified air carriers in scheduled passenger service. Each record on the data tape includes all relevant information about the particular trip in question. Included are such variables as points of origin and destination, airline, class of service, and fare (First Class, Coach Full Fare, Coach Discount Fare). The DOT data does not provide descriptions for specific discounts.

Reflecting the pattern of trips in the DOT data, the CPI sample of airline trips selected from DOT consists largely of discount fare service: 94 percent of the observations for discount service, 4 percent for full coach, and 2 percent for first class service. There are normally several discount fares for a given trip. Of the quotes priced for discount service, BLS assigns approximately half for the lowest available discount fare. The remaining half is for specific discount fares other than the lowest available fare.

Pricing the lowest available fare for half of the discount sample provides for an appropriate reflection of industry-wide sales typically referred to as "fare wars." Usually these deeply discounted fares are limited to the lowest available fare for a given trip. As seating for the lowest available fares is limited, BLS collects quotes for specifically selected discount fares other than the lowest available fare for the remainder of the sample.

Frequent Flyer discounts are not included in the index.

Pricing

The CPI uses the SABRE reservation system to follow prices of airline fares. This is the same system used by much of the travel industry for accessing flight information and issuing tickets and is an excellent source for up-to-the-minute price information on virtually all regularly scheduled airline flights. Using this system, prices are obtained for the sample of quotes. For those areas that the CPI prices monthly, the CPI obtains prices every month. The remaining cities are priced bi-monthly, with approximately half in even months and half in odd months. Prices include all applicable taxes, domestic and international. Airport, Security, and Fuel Surcharges are also included. Care is taken to spread pricing evenly throughout the month to give appropriate representation to price trends occurring within the month. Each price reflects the purchase date of the ticket rather than the flight date, which, in the case of discount service, is typically a minimum of 1 to 4 weeks after the purchase date.

Quality changes

When an airline discontinues a discount fare that is being priced, BLS substitutes the closest available alternative. Applicable restrictions may change, such as advance purchase requirements, connecting airports, days of the week for which travel is valid, etc. When such changes occur, BLS estimates the value of the change. If the value of the change in quality is substantial, the prices for two discount fares in question will not be compared. In most cases, however, the quality difference between two such discount fares is considered trivial and the prices are compared and reflected in the CPI.

A change in the fare class designation for non-lowest discount fares usually leads to a much larger price differential. As the CPI wishes to follow specific non-lowest discount trips, such changes are not reflected in the CPI.

Additional information

Additional information on the Consumer Price Index can be found in the BLS Handbook of Methods, chapter 17, "The Consumer Price Index," Bulletin 2490 (1997). This chapter is also available on the BLS Internet site (www.bls.gov/opub/hom/homch17_a.htm). For more information, call the Information and Analysis Section of the CPI at (202) 691-7000.

 

Last Modified Date: March 28, 2008