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Permanent vacations
Travel spending has soared, due in part to flexible office policies that are allowing Americans to travel more and book jaunts to Europe well into the traditional offseason. As of September, airline ticket sales were up more than 56% from a year ago, and rose 10.9% versus the same month in 2019, according to Mastercard Spending Pulse, which measures in-store and online retail sales. Lodging sales shot up more than 38% from a year ago, and were up 42% versus September 2019. “Taking the annual vacation, I think, is an entitlement for people,” Hawaiian Airlines CEO Peter Ingram said in an interview last month. “After having been deprived of that for a couple of years when there were restrictions on the ability to move around, people are really embracing it and going out.” United Airlines CEO Scott Kirby noted that more relaxed office attendance policies are also letting people travel more. “That’s why September, a normally off-peak month was the third strongest month in our history,” he said on the carrier’s earnings call. The appetite for travel is persisting despite soaring airfares, which have been fueled by a pilot shortage and aircraft delivery delays. Executives last month also said many people are even willing to pay up for more spacious seats. Airfare was up 43% on the year in the latest U.S. inflation read. “Travel remains extremely resilient,” said Anna Zhou, an economist at Bank of America Institute. Even after Labor Day, when travel normally slows down, “it’s just not the case this year, especially for international travel,” she said. For now, airlines are brushing off worries about the possibility of a recession. “While there’s noise regarding whether we are headed into a recession or not or whether we may even be in one now, we have not seen any noticeable impact on our booking and revenue trends,” Southwest’s CEO Bob Jordan said on an Oct. 27 earnings call.
Airlines and hotels aren’t seeing a slowdown in travel yet. But if a recession hits, that could jeopardize all consumer spending — and prompt even higher-income Americans to rethink big trips. “Where we go a year from now, that’s difficult to predict,” Hawaiian Airlines’ Ingram said. Tim Quinlan, senior economist at Wells Fargo, expects the holiday season will be the “last hurrah” for consumers. He anticipates a 2% annual gain in holiday retail sales year over year in November and December when adjusted for inflation. That compares with an estimated 8.1% last year, and a 10.4% annual gain in 2020. The bank originally projected a recession around Labor Day. Yet unemployment has remained historically low. The U.S. added 261,000 jobs in October, ahead of estimates. Americans have kept up their spending by cutting back on their savings rate, racking up credit card debt and drawing down savings accounts, Quinlan said. Soon, he said, they will have to start pulling back and making trade-offs. “People are spending more than they are making and that’s sort of the definition of unsustainable,” he said. “The consumer is on borrowed time.” Quinlan now predicts a recession will hit in April, May or June.
The consumer is on borrowed time. Tim Quinlan Wells Fargo senior economist
Travel has edge over shopping this holiday season amid inflation
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