The travel industry is in the midst of another hot summer as Americans hit the road and make the airport take advantage of slightly cheaper flights and gas. But the outlook for the 2024 holidays isn’t sunny: 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 home values boost their wealth. Although they’ve felt the bite of soaring inflation in recent years, they likely have more wiggle room in their budgets and more options to ease the pain by switching from brand names to generics or Whole Foods to Walmart.
Poorer families had less room to maneuver to avoid the burden of high prices. Although the labor market is strong, with low unemployment and wages that have risen particularly rapidly at the bottom of the income scale in recent years, some signs of financial stress have emerged among lower-income Americans. Credit card delinquencies are up, many low-wage earners report feeling less confident about their household finances, and companies serving lower-income groups report being under pressure.
The gap between higher- and lower-income consumers has been widening for years, but it’s expected to be particularly evident in travel this summer. Surveys show wealthier households are more optimistic about their ability to travel, and the services they’re more likely to use—like full-service hotels—are booming. Budget hotel chains, in contrast, are expected to report a pullback.
“If you go upscale, you’re actually seeing growth there,” said Adam Sachs, head 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 the travel industry will see muted but healthy growth this summer and 2024 as a whole. This growth is expected even after several years of dizzying vacations, as people took “revenge” for the trips they missed during the pandemic.
Outbound international travel is still booming, domestic leisure travel is slowing, and even business travel is making a comeback after a sharp decline that began in 2020. While dollar airfare spending may ease somewhat because flight prices have fallen, airports report record traffic on key days. AAA predicts Fourth of July travel will crush last year’s strong performance.
“We see a lot of people on the street. we see people taking flights,” said Joshua Friedlander, vice president of research at the US Travel Association. “We think that’s a sustainable level of growth.”
But this resilience is not uniform across income groups. Travel spending “increased and was driven largely by consumers with discretionary income,” the Federal Reserve Bank of Richmond said in the Fed’s latest anecdotal release on national economic experiences. “In contrast, low- to moderate-income consumers are reportedly falling behind” due to “higher costs leading to tighter household budgets.”
This adds to an established trend: The wealthy tend to spend far more on things like travel. Two-fifths of the income distribution account for about 60 percent of spending in the economy. the bottom two-fifths, about 22 percent. The gap is more extreme when it comes to holidays. Lower-income people have historically spent about 19 cents to the 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, NC, is among those feeling the pinch. She’ll be spending her summer on airplanes, but she won’t be leaving the airport for vacation.
Ms Barber, 42, makes $19 an hour, 40 hours a week, driving a garbage truck that cleans up after international flights. It’s a tough spot: The asphalt swells in the southern summer sun. garbage bags are heavy. And while it’s set to be a busy summer, Mrs. Barber’s job is increasingly failing to pay the bills. Both the prices and taxes on her home have gone up significantly, but she makes just $1 an hour more than when she started the gig five years ago. While that’s not the typical experience — overall, wages for lower earners have risen faster than inflation since at least late 2022 — it’s a reminder that behind the averages, some people are falling behind.
“I don’t do 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 happens at the other end of the income spectrum.
Parker Hess is room manager at the Allison Inn & Spa in Oregon’s Willamette Valley, where rooms start at $645, amenities include plush robes and a bucolic wine country setting, and business is booming.
“Our prices are the highest they’ve ever been,” Mr. Hess said, and while an occasional customer backs out, many don’t even ask about the price.
Hotel room rates are forecast to fall sharply this year. Jan Freitag, national director of hospitality analytics at CoStar Group, said he expects full-service hotels such as Marriott and Sheraton to see a 2.1 percent room rate increase this year, while mid-range room rates will be essentially flat. He expects room rates in budget hotels to drop completely as poorer travelers are cut back.
“The lower-income consumer seems to be choosing between must-haves versus want-to-haves,” 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 average, said they had no plans to leave this year compared to previous years.
“This may indicate some additional caution developing among these consumers about making the financial commitment required to take a vacation,” the analysts wrote in their report.
That said, analysts noted that the pullback was not yet evident in actual credit and debit card data, which has so far shown lower-income consumers continuing to spend. This is an important caveat: Just because people report financial stress in surveys doesn’t necessarily mean they will cut back.
And from an industry perspective, even if surveys are prophetic and poorer households pull back on holidays this year, demand from wealthier people could be enough to fuel a strong – if not enthusiastic – performance for the summer travel season.
This strong demand could add fuel to the overall economy. Domestic travel boosts US economic growth. International travel does not, but it signals consumer confidence.
On a full Sunday afternoon flight from Charles de Gaulle Airport outside Paris to Washington, DC, 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 family for about half of their trip and Ms Reasoner said they had not taken an international trip last year. A Denver resident, she said her home construction job has been steady and stable, and that while she has noticed higher grocery prices, recent inflation hasn’t put a dent in her family’s budget.
“We’ve been planning this trip for so long that the state of the economy didn’t really factor into our decision,” he said. Not everyone was so lucky, he said he understood.
