Goodbye Covid, Hello Economy: New Research on Travel

It has been an especially tough few years for the travel and tourism industry. It was, after all, ravaged by the pandemic’s shutdowns, travel restrictions and the resulting economic downturn. While tourism contributed $1.9 trillion to the global economy in 2021, above the $1.6 trillion in 2020, it still lags behind the pre-pandemic value of $3.5 trillion, according to the United Nations World Tourism Organization. However, with the threat of Covid waning and most travel restrictions lifted, the sector is bouncing back strongly and is slowly returning towards pre-pandemic levels.

Impact of Inflation and Economic Uncertainty

Recent marketing research of ours shows that just over 70% of Americans took or had plans to take a summer holiday in 2022. But while people’s vacation plans have begun to return to normal, their travel concerns have evolved beyond a fear of catching Covid. Travelers are now far more concerned about gas prices and extra expenses, such as food, transportation and souvenirs, as a result of skyrocketing inflation and economic uncertainty, than they are about Covid when going on vacation.

These concerns are significantly higher than worries about waiting times in airports, canceled flights and delayed flights despite widespread negative news reports about chaos at airports. However, this could be explained by the fact that just under 80% of those taking a vacation do so using a car with just under 38% taking an airplane.

Domestic Vacations Dominate

We found that domestic tourism accounted for almost 80% of vacations, with international trips making up just slightly over 20%. This is similar to post-pandemic levels. The popularity of international travel (despite the desire to travel after the lockdown) wanted, mostly likely dampened by the higher cost of foreign vacations. Those can be up to five-times more expensive, according to a report in the L.A. Times.

Now with inflation driving up the additional expenses of food, transportation, souvenirs, and so on, the overall cost of vacations is spiraling upwards. Add to this the uncertainty of delayed/canceled flights and the extra costs involved in rebooking or having to stay another night, and it is of little surprise that for many people staying local can be a less stressful alternative. This has seen ‘staycations’ form a significant proportion of our ‘domestic’ holiday plans, with over a quarter of respondents (26.2%) having taken vacation time off work to spend time alone at home or with friends.

Spend on Travel Relatively Flat

With the pandemic nearing an end, it was expected that consumers would spend big in their vacations. They were, after all, cooped up in multiple lockdowns for over two years. This has been labeled ‘revenge travel’, referring to the rise in the number of people wanting to make up for time and experiences lost to the pandemic.

But the thoughts of people spending on once-in-a-lifetime vacations to avenge the time they lost traveling to Corona does not correlate with the findings of our market research. Only just under 13% of respondents said they planned to spend more on their vacation this year compared to previous years. While just over half said they would spend the same, almost 37% said they would be budgeting less.

So, while people’s vacation plans are starting to return to normal, deteriorating economic conditions could prevent a return to pre-covid normality in the short-term. Inflation has already begun to impact the travel and tourism spending patterns of lower-income consumers. This negative influence could gain momentum and start affecting more affluent consumer segments, highlighting the vulnerability sectors like travel and tourism are currently facing.

Prices Set to Increase in 2023

With rising energy costs and inflation, and the war in Ukraine, set to continue into 2023, prices in the travel sector are forecast to increase. Flight and hotel prices are expected to rise by more than 8% year-on-year in 2023, according to data from CWT and the Global Business Travel Association (GBTA). This follows an increase of approximately 48.5% in air fares this year compared to last, together with an 18.5% rise in hotel rates and a 7.3% increase in car rental charges.

So, with rising costs and labor shortages still impacting the travel sector, paired with the above insights and analytics, two factors are influencing our vacation picking strategy for next year: our passion to travel and the size of our budget.