The travel industry is in the midst of yet another hot summer as Americans head to the airport to take advantage of slightly cheaper flights and gasoline, but the outlook for vacations in 2024 isn't all bright. Just like the rest of Americans' consumer experiences this year, the outlook is sharply divided.
Many of the wealthy consumers who are the lifeblood of the travel industry are feeling good this year as rising stock and home prices have boosted their wealth. After struggling with runaway inflation in recent years, they now have more room in their budgets and are more likely to have options to dull the pain by trading in for generics instead of name brands and Walmarts instead of Whole Foods.
Poor families have little room for maneuver to avoid being hit hard by rising prices. Although the job market is strong, unemployment is low and wages have risen sharply in recent years, especially at the bottom of the income ladder, signs of economic strain are emerging among low-income Americans. Credit card delinquencies are on the rise, many low-income people report feeling less confident about their finances and businesses that serve them are feeling stressed.
The gulf between high- and low-income groups has been widening for years, but it's likely to be especially pronounced this summer when it comes to travel. Surveys show that wealthier people are more open to traveling, and the services they're likely to use, like full-service hotels, are thriving. By contrast, budget hotel chains are expected to see a decline.
“When you look at luxury travel, you're really seeing growth,” said Adam Sachs, president of tourism economics at Oxford Economics. “A lot of it has to do with the different economic circumstances of different income groups.”
Bookings to date, survey responses and spending trends suggest the travel industry is on track to experience modest but healthy growth this summer and throughout 2024. This growth comes after a few years in which people took to the skies for vacations as “revenge” for travel they missed during the pandemic.
International travel remains strong, domestic leisure travel is holding up, and even business travel is recovering after a steep decline that began in 2020. While airfare spending may be down somewhat due to lower airfares, airports are reporting record traffic on the big day, with AAA predicting Fourth of July travel will far surpass last year's strong performance.
“We're seeing a lot of people on the roads and getting on planes,” said Joshua Friedlander, vice president of research at the U.S. Travel Association. “We think that's a sustainable level of growth.”
But the recovery has not been uniform across income groups. Travel spending “increased, driven primarily by consumers with disposable income,” the Federal Reserve Bank of Richmond reported in its latest anecdotal update on the state of the national economy. “Conversely, low- and moderate-income consumers reported cutting back on spending as rising costs put strain on their finances.”
This adds to a well-established trend that the wealthy tend to spend more on luxuries like travel: The top two-fifths of the income distribution account for about 60 percent of economic spending, while the bottom two-fifths account for about 22 percent. When it comes to vacations, the difference is even more extreme: One analysis found that lower-income earners have historically spent only about 19 cents for every dollar that higher-income earners spend on lodging, transportation, and other travel-related purchases.
Recent economic trends could make the situation even worse. One airport worker in Charlotte, North Carolina, who is in this predicament, LaShonda Barber, is spending her summers on planes but never leaving the airport for her vacation.
Barber, 42, earns $19 an hour for 40-hour weeks as a garbage truck driver, cleaning up the remains of international flights. It's hard work. The runways are sweltering in the Southern summer sun, the garbage bags are heavy, and in what promises to be a busy summer, Barber's job is increasingly unable to cover the cost of living. Prices and local taxes have risen substantially, but Barber's hourly wage is only $1 more than when he started the job five years ago. It's not the norm (on the whole, low-income wages have been growing at a rate above inflation since at least the second half of 2022), but it's a reminder that some people are lagging behind the average.
“I don't travel solo,” Barber said, explaining that it's the first time she's taken a family trip in years, and when she does, she'll go by car.
This is in stark contrast to what's 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 and amenities include plush bathrobes and an idyllic wine-country setting. Business is booming.
“Our rates are the highest they've ever been,” Hess said, adding that sometimes customers push back, but many don't even ask about the rates.
Hotel room rates are expected to be sharply split this year. Jan Freitag, national director of hospitality analytics at CoStar Group, said he expects room rates at full-service hotels such as Marriott and Sheraton to rise 2.1% this year, while mid-range room rates will remain roughly flat. He expects room rates at economy hotels to fall outright as poorer travelers cut back on travel.
“Low-income consumers seem to be choosing between things they absolutely want and things they absolutely want,” Freitag said. “They need to pay their credit card bills and their car insurance, and those things are expensive right now.”
The gap is evident in surveys: A Bank of America Institute summer travel survey found that a higher percentage of households with annual incomes below $75,000, roughly the national average, said they had no plans to travel this year than in previous years.
“This may signal particular caution among consumers about making the financial commitment necessary to take vacations,” the analysts wrote in the report.
Still, analysts note that the cuts aren't yet clear, as actual credit and debit card data has so far shown that lower-income consumers continue to spend. This is an important caveat: Just because people report financial strain in surveys doesn't necessarily mean they'll cut back on spending.
And from an industry perspective, even if the survey results prove prescient and poorer households forego vacations this year, demand from the wealthy alone could be enough to drive strong (if not enthusiastic) performance heading into the summer travel season.
This strong demand has the potential to fuel the overall economy: domestic travel contributes to US economic growth, while international travel does not, but it is an indication of consumer confidence.
On a packed flight from Charles de Gaulle airport outside Paris to Washington, DC, on Sunday afternoon, Erica Reasoner, 42, was returning home with her husband and two children from a two-week trip to Italy and France.
Reasoner and his family stayed with friends and relatives about half of their trips and did not travel internationally last year, he said. Reasoner, who lives in Denver, said his custom-home construction work has been steady, his business has been strong and recent inflation has not caused problems for his family's finances, although he acknowledged that food prices have risen.
“We had been planning this trip for a long time, so the economic situation didn't really factor into our decision,” she said, though she does realize that not everyone is so lucky.