The travel industry is in the midst of another hot summer as Americans head to the airport to take advantage of slightly cheaper flights and gas. But the holiday outlook for 2024 isn’t entirely rosy: Like the rest of the American consumer experience this year, it’s sharply divided.
Many wealthier consumers – always the lifeblood of the travel industry – are feeling good this year as a strong stock market and rising real estate values boost their wealth. Although they have suffered from soaring inflation in recent years, they may have more wiggle room in their budgets and more options to ease the pain by switching from brand-name products to generics or from Whole Foods to Walmart.
Poorer families had less scope to avoid the high prices. Although the job market is strong, unemployment is low, and wages at the lower end of the income spectrum have risen particularly quickly in recent years, some signs of economic strain are emerging among lower-income Americans. Credit card defaults have increased, many low-income earners report feeling less confident about their own household finances, and businesses that serve lower-income groups report feeling stressed.
The gap between higher-income and lower-income consumers has been widening for years, but is expected to become particularly evident in travel this summer. Surveys show that wealthier households are more optimistic about their ability to travel and that services they are more likely to use – such as full-service hotels – are thriving. However, a decline is expected for budget hotel chains.
“If you go upscale, you actually see growth there,” said Adam Sacks, president of tourism economics at Oxford Economics. “A lot of it has to do with the different financial situations of different income groups.”
Bookings, survey responses and spending trends to date suggest the travel industry will see muted but healthy growth overall this summer and into 2024. This growth is also expected after several years of soaring leisure travel as people took “revenge” for the trips they missed during the pandemic.
International outbound travel is still booming, domestic leisure travel is continuing, and even business travel is coming back after a sharp decline since 2020. While airfare spending may decline somewhat due to lower airfares, airports are reporting record traffic on key days. AAA predicts Fourth of July travel will surpass last year’s strong performance.
“We see a lot of people on the street; We see people flying,” said Joshua Friedlander, vice president of research at the US Travel Association. “We believe this is a sustainable level of growth.”
However, this resilience is not uniform across all income groups. Travel spending “increased and was largely driven by consumers with disposable income,” the Federal Reserve Bank of Richmond reported in the Fed’s latest anecdotal release on national economic experiences. “Conversely, low- to middle-income consumers reportedly retreated” because “higher costs led to tighter household budgets.”
This contributes to an established trend: Rich people tend to spend much more on luxury items like travel. The top two fifths of the income distribution account for around 60 percent of the economy’s spending; the bottom two-fifths, about 22 percent. The divide is even more pronounced when it comes to vacation. Lower-income people have historically spent about 19 cents for every dollar a high-income person spends on lodging, transportation and other travel-related purchases, according to one analysis.
Recent economic trends could exacerbate this. Lashonda Barber, an airport worker in Charlotte, North Carolina, is among those feeling the pinch. She will spend the summer on a plane, but won’t leave the airport to go on vacation.
Ms. Barber, 42, earns $19 an hour, 40 hours a week, driving a garbage truck that cleans up after international flights. It’s a difficult situation: the asphalt is scorching hot in the southern summer sun; The garbage bags are heavy. And despite a busy summer ahead, Ms. Barber’s job is increasingly failing to pay her bills. Both prices and her home taxes have risen significantly, but she only earns $1 an hour more than when she started working five years ago. While that’s not the usual experience — overall, wages for lower-income people have risen faster than inflation since at least the end of 2022 — but it’s a reminder that some people are lagging behind the averages.
“I don’t take personal trips,” Ms. Barber said, explaining that it had been several years since she had taken a family vacation and that when she did, she drove.
This is in stark contrast to what is happening at the other end of the income spectrum.
Parker Hess is room director at the Allison Inn & Spa in Oregon’s Willamette Valley, where rooms start at $645, amenities include luxurious robes and an idyllic wine landscape, and business is booming.
“Our rates are the highest they’ve ever been,” Mr. Hess said, and although the occasional customer will balk, many don’t even ask about the price.
Hotel room prices are forecast to fluctuate wildly this year. Jan Freitag, national director of hospitality analytics at CoStar Group, said he forecast full-service hotels like Marriott and Sheraton would see room rate growth of 2.1 percent this year, while mid-range room rates were essentially flat would stay. He expects room rates in economy hotels to fall completely as poorer travelers step back.
“Lower-income consumers appear to be making a choice between the things they have to have and the things they want,” Mr. Freitag said. “You have to pay your credit card bill, you have to pay your car insurance, and those things are expensive right now.”
This gap is also evident in surveys. In a Bank of America Institute summer travel survey, a higher percentage of households with annual household incomes below $75,000, about the national median, said they had no travel plans this year compared to previous years.
“This may indicate that there is some caution among these consumers when it comes to making the financial commitment required to take a vacation,” the analysts wrote in their report.
However, analysts noted that the decline is not yet apparent in actual credit and debit card data, which so far has shown that lower-income consumers are continuing to spend. That’s an important caveat: Just because people report financial stress in surveys doesn’t necessarily mean they’ll cut corners.
And even if the surveys are prescient from an industry perspective and poorer households forego vacations this year, demand from richer people alone could be enough to drive a strong – if not enthusiastic – performance for the summer travel season.
This strong demand could stimulate the overall economy. Domestic travel contributes to U.S. economic growth. This is not the case with international trips, but they do signal consumer confidence.
On a Sunday afternoon flight from Charles de Gaulle Airport outside Paris to Washington, D.C., 42-year-old Erica Reasoner returned from two weeks in Italy and France with her husband and two children.
She and her family had stayed with friends and relatives for about half of their trip, and Ms. Reasoner said they had not taken any international travel last year. As a Denver resident, she said her job in custom home building is stable and business is solid, and that while she has noticed higher grocery prices, recent inflation has not caused problems for her family’s budget.
“We’ve been planning this trip for so long that the economy didn’t really play a role in our decision,” she said. Not everyone was so lucky, she said.
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2024-07-03 09:00:33
www.nytimes.com
