Domestic airlines are getting crushed because everyone wants to escape to Europe

• International travel demand is outpacing domestic demand as Americans flock to Europe in 2023.
• This is keeping domestic airfare below 2019 levels — good news for those vacationing closer to home.

If you've caught yourself scrolling through Instagram wondering why everyone seems to be on vacation in Europe this summer, you're far from alone.

Despite the fires in Greece, heatwaves in Spain, and suffocating, selfie-taking crowds in Italy, Europe has emerged as the top destination for American traveling abroad this summer, according to a June report from the travel booking site Hopper.

Our international wanderlust may be a worrying trend for domestic airlines — but it makes now the perfect time to buy flights for fall and winter vacations within the US.

According to weekly data from Bank of America, international bookings are ahead of domestic year-over-year by about 8.5% as travelers flock to overseas destinations in Europe and Asia.

Sonia Bhagwan, travel advisor and founder of Dream Vacations, told Insider the surge is a result of Americans' desire to experience "bucket list destinations that they've always wanted to see, but never had the money or the courage to do so," following the end of COVID-19 travel restrictions.

This is good for major airlines like American Airlines, Delta Air Lines, and United Airlines that have a global presence and won't be as impacted by the domestic decline — United, for example, boasts itself as the "the largest US carrier across both the Atlantic and Pacific oceans."

However, airlines that predominantly fly in the US are likely to face headwinds.

Southwest Airlines, which is the US' biggest domestic carrier, said in a July earnings call that it expects to earn less revenue in the third quarter — suggesting domestic demand is on the decline.

Low-cost carriers Spirit Airlines, Frontier Airlines, and JetBlue Airways had similar outlooks.

"I think you're seeing last year was maybe the year for domestic, and this year is the year for international," Frontier CEO Barry Biffle told CNBC on August 2.

Redburn analyst James Goodall said Monday that domestic airlines are likely to feel this pressure for not just months, but years, Barron's reported.

Just look at airlines' stock prices over the past month and you can see what's happening: Airlines that fly the most domestically have been hammered — with Southwest and JetBlue down about 13% and 30%, respectively, over the past month, for instance.

Whereas airlines with more international flying, like United and Delta, are down only 5% and 7%.American is also taking a 15% hit, but Goodall noted the Texas-based carrier has the "greatest exposure to the more competitive domestic market."

Good news for US travelers planning trips closer to home

As domestic airlines take a hit, consumers could reap the benefits with cheap fares and fall promotions designed to stimulate demand.

In Hopper's quarter three consumer travel index published on Tuesday, domestic airfare is trending down at $257 roundtrip, which is about 11% below both 2022 and 2019 levels.

It attributes this to decreasing fuel costs and added seat capacity compared to summer 2022, as well as travelers flocking overseas after being locked out for nearly three years during COVID.

But don't get too excited — Hopper said it expects prices to go up by the holidays as demand increases and timing is less flexible.

Southwest, Frontier, and Spirit have all held massive sales and promotions for fall flights this summer, a strategy typically used to boost slow bookings, according to Bloomberg Opinion.

Bhagwan said she's telling her clients to buy flights for Christmas and Spring break now, even though September is typically the best month to nab cheap airfare.

"As of probably three weeks ago, the airfare domestically has dropped drastically," she told Insider, adding that she's advising people to act quickly, as it "isn't going to last forever."

International pricing, on the other hand, is soaring.

According to Hopper, airfare to Europe is at a six-year high, averaging about $1,200 roundtrip. And, it doesn't expect ticket prices to drop anytime soon.

However, it noted fares to shorter-haul international destinations like Mexico and the Caribbean have fallen significantly since last summer thanks to increased capacity and lower fuel prices — a sigh of relief for vacationers.

"We used to be able to plan these [international] trips three to four months in advance," Bhagwan said. "Now I'm telling people they need to plan 10 to 12 months out in advance just because airfares are so high. Coupled with the Olympics that will be in Paris next summer, people are already starting to plan for that."