Home » America’s Divided Summer Economy Is Coming to an Airport or Hotel Near You

America’s Divided Summer Economy Is Coming to an Airport or Hotel Near You

by ballyhooglobal.com
0 comment

The travel industry is in the midst of another hot summer as Americans hit the road and make for the airport to take advantage of slightly cheaper flights and gas. But the 2024 vacation outlook isn’t all sunny: Like the rest of the American consumer experience this year, it is sharply divided.

Many richer consumers — always the lifeblood of the travel industry — are feeling good this year as a strong stock market and rising home values boost their wealth. While they have felt the bite of rapid inflation over the last few years, they are likely to have more wiggle room in their budgets and more options to ease the pain by trading down from name brands to generic, or Whole Foods to Walmart.

Poorer families have had less room to maneuver to avoid the brunt of high prices. Although the job market is strong, with low unemployment and wages that have risen especially rapidly at the bottom of the income scale in recent years, some signs of economic strain have been surfacing among lower-income Americans. Credit card delinquencies have risen, many lower earners report feeling less confident in their own household finances, and companies that serve lower-income groups report that they are under stress.

The gulf between higher- and lower-income consumers has been widening for years, but it is expected to show up especially clearly in travel this summer. Surveys show that richer households are more optimistic about their ability to take trips, and services that they are more likely to use — like full-service hotels — are flourishing. Budget hotel chains, by contrast, are expected to report a pullback.

“If you go to upscale, you’re actually seeing growth there,” said Adam Sacks, the president of tourism economics at Oxford Economics. “A lot of that has to do with the different financial situations of different income groups.”

Bookings, survey responses and spending trends so far suggest that the travel industry will see muted but healthy growth this summer and in 2024 as a whole. That growth is expected even after several years of breakneck vacationing as people took “revenge” for the trips they missed during the pandemic.

Outbound international travel is still booming, domestic leisure travel is holding up, and even business travel is coming back after a sharp decline that started in 2020. While airfare-dollar spending might fall somewhat because flight prices have come down, airports are reporting record traffic on key days. AAA is forecasting that Fourth of July travel will smash last year’s strong performance.

“We’re seeing lots of people on the road; we’re seeing people taking flights,” said Joshua Friedlander, the vice president of research at the U.S. Travel Association. “We think this is a sustainable level of growth.”

But that resilience is not uniform across income groups. Spending on travel “picked up and was largely driven by consumers with discretionary income,” the Federal Reserve Bank of Richmond reported in the Fed’s latest anecdotal release about national economic experiences. “Conversely, low-to-moderate-income consumers were reportedly pulling back” because of “higher costs leading to tighter household budgets.”

That adds to an established trend: Rich people tend to spend a lot more on splurges like travel. The top two-fifths of the income distribution accounts for about 60 percent of spending in the economy; the bottom two-fifths, about 22 percent. The divide is more extreme when it comes to vacationing. Lower-income people have historically spent about 19 cents on the dollar that a high-income person devotes to lodging, transportation and other travel-related purchases, based on one analysis.

Recent economic trends could exacerbate that. Lashonda Barber, an airport worker in Charlotte, N.C., is among those feeling the pinch. She will spend her summer on planes, but she won’t be leaving the airport for vacation.

Ms. Barber, 42, makes $19 per hour, 40 hours per week, driving a trash truck that cleans up after international flights. It is a difficult position: The tarmac is sweltering in the Southern summer sun; the rubbish bags are heavy. And while it’s poised to be a busy summer, Ms. Barber’s job is increasingly failing to pay the bills. Both prices and her home taxes are up notably, but she is making just $1 an hour more than she was when she started the gig five years ago. While that is not the standard experience — overall, wages for lower-income people have grown faster than inflation since at least late 2022 — it is a reminder that behind the averages, some people are falling behind.

“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.

That comes in stark contrast to what is happening at the other end of the income spectrum.

Parker Hess is director of rooms at the Allison Inn & Spa in Oregon’s Willamette Valley, where rooms start at $645, amenities include plush robes and bucolic wine country surroundings, and business is booming.

“Our rates are the highest they’ve ever been,” Mr. Hess said, and while a customer will occasionally push back, many do not even ask about the price.

Hotel room rates are forecast to divide sharply this year. Jan Freitag, national director of hospitality analytics at the CoStar Group, said he was forecasting that full-service hotels like Marriott and Sheraton would post 2.1 percent room-rate growth this year, while midscale room rates would be essentially flat. He expects economy hotel room rates to outright decline as poorer travelers retrench.

“The lower-income consumer seems to be making a choice between things that they have to have versus the things that they want to have,” 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.”

That 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, roughly the national median, said they did not have plans to go away this year compared with previous years.

“This may indicate some extra caution developing among these consumers around making the financial commitment necessary to take a holiday,” analysts wrote in their report.

That said, the analysts noted that the pullback was not yet evident in actual credit and debit card data, which has so far shown that lower-income consumers continue to spend. That’s an important caveat: Just because people report financial strain in surveys does not necessarily mean they will cut back.

And from an industry perspective, even if the surveys are prescient and poorer households do pull back on vacations this year, demand from richer people alone could be enough to fuel a strong — if not enthusiastic — performance for the summer travel season.

That strong demand could add fuel to the overall economy. Domestic travel adds to U.S. economic growth. International trips do not, but they signal consumer confidence.

On a full Sunday afternoon flight from Charles de Gaulle Airport outside Paris to Washington, D.C., Erica Reasoner, 42, was returning 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 an international trip last year. A resident of Denver, she said that her job in custom homebuilding was stable and business solid, and that while she had noticed higher grocery prices, recent inflation had not caused problems for her family’s budget.

“We planned this trip for so long that the state of the economy didn’t really play into our decision,” she said. Not everyone, she said she realized, was so fortunate.

Source link

Related Articles

Leave a Comment

Adblock Detected

Please support us by disabling your AdBlocker extension from your browsers for our website.