Carnival Corp. flagship had the busiest booking week in its history between March 28 and April 3 after the U.S. Centers for Disease Control and Prevention dropped Covid’s cruise warning and travel deadlines were approaching. The International Air Transport Association said on Wednesday that global passenger air transport had improved in February since January, as the effects of the omicron variant had faded and demand had more than doubled compared to the previous period. The business group called on airport infrastructure providers to prepare for a “huge increase in passenger numbers in the coming months.” Ticket spending rose approximately 8% in the week ending April 2 compared to 2019, while accommodation purchases rose 17%, according to Bank of America Corp., a trend analysis of US credit and debit cards.
“We have seen an extremely rapid recovery, not only in demand levels but also in price strength,” said Marriott International Inc. CEO. Anthony Capuano at the JPMorgan Chase & Co. conference in March “You have achieved historically high levels of savings. You have people who have been imprisoned for two years. In Las Vegas, for example, recreational visits have not yet had a noticeable impact due to the expiration of stimulus benefits in the US, rising gas prices or fluctuating consumer sentiment, BofA analyst Shaun Kelley wrote in a March report, citing interviews with casino managers. .
When the purchasing power of households decreases, consumers usually first cut down large, expensive items and things that are nice to have but are not absolutely necessary. This includes home furnishings, large do-it-yourself projects, cars and – usually – holidays. According to a separate BofA report released this week, there are some indications that spending growth among lower-income consumers is slowing, especially on clothing and furniture. To that end, Melius Research analyst Rob Wertheimer lowered its view of stock at Stanley Black & Decker Inc. last month. to “hold on” with reference to concerns about falling consumer spending. “The huge drop in restaurant spending during the first phase of Covid’s disease has led to a huge increase in sales of things like tools,” he wrote in a March note. “But the last few months have shown a worrying break in the long spending trend, with consumers seemingly unable to stop spending on other things when restaurant spending has returned.”
Only so many new TVs, kitchen units and Peloton bicycles can be bought. Consumers have spent the last two years investing in making their homes more enjoyable. What the average person did not do so much during a pandemic is to go on vacation to more remote corners of the world. As a result, many prefer travel expenses.
It’s not just that passengers are willing to catch their nose over higher prices; they are increasingly choosing more premium options. Room prices at US luxury hotels rose 25% in March compared to March 2019, reflecting travelers’ willingness to spend, according to STR, CoStar Group Inc. According to AirDNA, a provider of short-term rental data, average daily holiday rental rates are rising the most in urban areas, which most have avoided for the past two years. Airlines used to think that customers would choose business class or pay extra for more spacious seats only if their company paid for a business trip. Holiday travelers have also been pleased with these opportunities, especially when they re-enter the world after spending so much time in their homes during the pandemic. The pace of air traffic resumption was similar in each cabin class, IATA said.
As a sign that airlines expect the current strong demand to not only sustain but grow, all leading US carriers except Delta Air Lines Inc. they expect to fly at or above Covid’s capacity by the third quarter, according to analyst Helane Becker of Cowen & Co. Delta does not limit flights for lack of interest. The carrier reported the highest day of cash sales in its nearly 100-year history in March, although it restored only about 87% of its air capacity. Delta deliberately relocates more slowly to ensure that it can fly personnel in the midst of widespread labor problems while closely monitoring fuel prices.
To compensate for the higher energy costs, Delta must recover about $ 15 to $ 20 each way on tickets, President Glen Hauenstein told JPMorgan in March. This can be done in the context of an average ticket price of around $ 200, and the generally wealthier air traveler Delta is looking for, he said. “We see the increase in fuel we have to go through as something that is very, very achievable for the demographics we have, without destroying demand,” Hauenstein said. Ultra-low cost carriers may face greater problems with the shock of the labels because their customers tend to be more price sensitive, he said. Normally, Delta takes approximately 60 to 90 days to adjust its performance and capacity pricing plans to offset higher-than-expected fuel costs. The schedule has accelerated due to strong demand, and Delta expects to offset higher fuel prices in the second quarter, Hauenstein said.
“If higher commodity prices persist, we will need to find out what impact they will have, but keep in mind that the industry was able to cope with $ 100 in oil between February 2011 and September 2014,” said Aengus Kelly, CEO of AerCap Lessor. Holdings NV. , said on the company’s results margin last week. “We firmly believe that will happen this year as well.”
Customers’ willingness to tolerate inflation in travel has natural limits. According to Destination Analysts, which has surveyed more than 1,200 passengers since March 2020, there are already some warning signs. More than 60% of respondents between March 15 and 23 said prices were too high, and almost a third said this had prevented them from traveling in the past month. A quarter said recent consumer price inflation led them to cancel a path ahead. Meanwhile, the amount that American travelers said they spent on travel this year dropped to just over $ 4,000 in mid-March from $ 4,283 in mid-February. Nevertheless, about 61% of travelers said that the holiday is a budget priority for the next three months.
After those first few trips after the pandemic, higher prices will force many to think about booking another one. Or they could force vacationers to switch from a luxury property to a premium one, or exchange the apartment for two interconnecting rooms. So far, however, tourism executives rightly think that this strong demand will withstand.
More from the writers at Bloomberg Opinion:
• Consumers are finally ready to cut spending: Andrea Felsted
• The US economy is doomed without significant costs: Gary Shilling
• Aviation supply problems are far from over: Brooke Sutherland
This column does not necessarily reflect the opinion of the editorial staff or Bloomberg LP and its owners.
Brooke Sutherland is a Bloomberg Opinion publicist who covers businesses and industrial companies. She previously wrote a column on mergers and acquisitions for Bloomberg News.
Andrea Felsted is a Bloomberg Opinion publicist covering the consumer and retail industries. She previously worked for the Financial Times.
More such stories are available at bloomberg.com/opinion