Consumers planning summer vacations are facing higher airfares, in addition to higher hotel room rates. Taken together, this higher total cost of travel could impact how or if Americans travel this summer for vacations, as well as how corporations think about business travel.
The added cost pressure from the airlines comes as the number of people flying, according to Transportation Safety Administration checkpoint passenger counts, is soaring. Strong demand for airline seats is unfortunately not met with new supply. The number of available seat miles, the airline industry metric to track supply, stands just around the pre-pandemic totals. This could mean that leisure and corporate travelers are having a harder time finding seat availability, and when they do, those seats are more expensive than ever before.
The Bureau of Labor Statistics tracks airline fares as part of the consumer price index. It is a lagging indicator, so it only shows consumed prices. But if the current interplay of TSA throughput, seat miles and airfare remains in place for the summer, it could have implications for the hotel industry.
Leisure travelers may need to trade down in their choice of lodging if airfares eat up a larger part of travel budgets. In past years, seat availability was barely a constraint, so consumers could choose their preferred hotel accommodations first, knowing that they would have little difficulty finding a suitable, cheap flight to get them to their destination. In today’s environment, the decision may be reversed, with finding an airfare that fits the budget first on consumers’ minds, possibly forcing them to choose a room at a cheaper price point.
Corporations faced with a slowing economy will likely scrutinize all costs and, as in any other downturn, the two easiest line items to trim are travel and training. Anecdotally, even partners in the largest accounting firms must get travel authorized and may resort to more virtual client meetings. Curtailed corporate travel could have implications for higher-end full-service hotels in downtown locations that are still in the middle of a recovery.
Looking ahead, airfares will likely continue to rise in the coming months. During first-quarter earnings calls, most airline chief executive officers were optimistic in reading demand and pricing over the next few quarters. This could have negative knock-on effects on the hotel industry, and operators should continue to pay close attention to the interplay between airfares and room rates this summer.