ORLANDO, Fla — Tourism Economics President Adam Sacks believes the travel recovery from the depths of the COVID-19 pandemic has been nothing short of remarkable.
But with gas prices reaching historic highs across the U.S. and the rest of the world, could that be enough to chill travel sentiment for what was expected to be a white-hot summer travel season?
Speaking during the opening session of the 2022 HSMAI Revenue Optimization Conference Americas, Sacks offered a simple answer to that question: "No."
Noting that high gas prices have had a significantly negative impact on consumers' general outlook on the recovery and in recent surveys a majority indicated that the high prices are enough to push them to scale back on travel plans, Sacks said high gas prices historically have sparked significant negative sentiment but not demonstrable change in behaviors.
"We looked historically at gas prices and how much people actually spend on gas ... and they move exactly together, which tells us gas prices are incredibly inelastic and that as gas prices go up, people spend more on gas proportionally," he said, noting people will simply drive as much as they need to and not change behaviors whether prices are relatively high or low.
He doesn't have the same rosy outlook for high airfares, which are up 26% since the beginning of the year.
"This is where I think we do need to be a bit more circumspect about potential effects on our industry," Sacks said.
The good news so far, he said, is that consumers have been poised to withstand the sticker shock, leveraging high savings from pandemic-era stimulus funding and increasing wages that have been able to outpace high rates of inflation.
"Consumers seem to be pushing through," he said, but that could change if the broader economy takes a turn for a worse.
Economic Expectations
Sacks said a majority of economists seem to believe that a recession is looming at some point this year or in 2023, but the silver lining is economists are often wrong.
He said Tourism Economics' modeling still indicates that the American economy will manage to avoid a recession in the near term, putting the odds of a recession at roughly one-third.
"The most likely outcome is we get through without a full-blown recession, and if there is one, it will be mild and short," he said.
The overall economic outlook remains murky, though, with significant interest rate increases looming from the Federal Reserve. He likened those rate increases to medicine and ongoing high inflation to a sickness the economy is currently suffering from. Like most medicines, the cure comes with some unintended and unpleasant side effects, he said.
The labor environment, with continued low unemployment and high wage growth, is another difficult element for hotels to contend with, he said, noting the outlook has been improving marginally.
"Part of this is going to be resolved as the labor force and the labor supply begins to increase," he said. "We are seeing the labor force participation rate rise, but I don't think we will get back to where we were."
He said the hotel industry still has roughly 18% fewer jobs than it did in 2019, but is already paying similar wages overall due to pay increases.
A Strong Recovery
Overall, Sacks said revenue managers should be proud of how far the discipline has evolved since the last downturn and how room rates have led the way in the recovery.
Average daily rate increases "have been averaging double-digit [increases] every month throughout the entire year of 2022," he said.
He said that is a testament to the overall sophistication of revenue management in the industry.
Hotel demand growth also has been robust, he said, but early returns so far this summer show a slight cooling of demand growth, which he attributed to airline capacity issues.