The post-pandemic travel boom might be over
The post-pandemic travel boom is showing signs of slowing down, with budget airlines reporting a drop in bookings this fall as consumers shift their spending habits.
According to The Wall Street Journal, some budget airlines have cut fares to keep their seats full. Frontier and Spirit Airlines are among those offering steep discounts ahead of the holidays.
“You’ve got fuel, capacity and demand all headed in the wrong direction,” Frontier Airlines CEO Barry Biffle said at a Morgan Stanley conference in September. “We’re kind of the canary in the coal mine.”
Spirit informed its investors last month that passenger volumes were coming back down to earth and that profitability would decline as a result.
“During the last few weeks, the company has seen heightened promotional activity with steep discounting for travel booked for the second half of the third quarter through the pre-Thanksgiving travel period,” Spirit wrote in a regulatory filing with the SEC.
Citing booking app Hopper, the Journal reported that domestic travel prices are down 26% between June and September.
Consumers feel the pinch
Budget airlines cater to younger and thriftier passengers who don’t care as much about premium cabins or in-flight entertainment. They’re also the go-to source for frequent travelers who opt for value over premium experiences.
These demographics are feeling the pressure of persistent inflation, rising interest rates, and the resumption of student loan payments—the latter of which is expected to add between $200-$300 to monthly expenses.
Analysts are now warning of a “third wave” of inflation tied to rising oil prices and conflict in the Middle East. Because oil prices impact thousands of goods and services, consumers can expect to pay more beyond the pump.
“[C]onsumers feeling the pinch of higher oil prices are more likely to trim spending on other items before they reduce spending on the essential good that is gasoline,” according to RBC Capital Markets strategist Michael Tran.
With consumers devoting more of their paychecks to debt payments and essential goods, there’s less money to spend on discretionary items, including air travel.
A tale of two travel industries
It’s been a bumpy ride at budget airlines, but major carriers like Delta and United still see strong demand ahead of the holidays. They can probably thank international travel—and wealthier passengers—for that.
“Our international demand remains robust, led by the transatlantic,” Delta president Glen Hauenstein said last month. Revenue is up as more passengers opt for comfier high-end seats.
The tale of two travel industries highlights the growing chasm between rich and poor, and it’s partly driven by what economists call inflation inequality.
Because poorer households spend more of their income on food, gas, and rent, they have fewer ways to reduce spending and are more likely to feel the effects of inflation.
“This shift of spending away from luxury items like vacations and new cars, and toward necessities, pushes inflation up for poorer families more than richer ones,” according to economist Jacob Orchard.
So, while the travel industry is far from dead, discretionary travel for those with stricter budgets could be affected as other costs increase.