Travel has the edge over shopping this holiday season amid inflation

Retailers have a new threat this holiday season: wanderlust.

Americans are getting back into the air, filling up hotels, crowding theme parks — and they’re showing a willingness to spend more of their money on travel.

This sets up the fiercest battle of the holiday season for consumer wallets since before. the covid pandemic, with persistent inflation already weighing on household budgets in the breakthrough quarter for retailers. Retailers are juggling other challenges: selling off excess inventory, trying to appeal to consumers who have already bought a lot during the pandemic, and wooing shoppers who have become more budget-conscious.

For the travel industry, it was a year of recovery. Delta Airlines, MasterCard and Airbnb are among the companies benefiting from windfalls. Other companies also indicated a shift towards experiences and services. nation live recorded double-digit growth in attendance at theatres, arenas, stadiums and festivals. Starbucks says customers are pounce for expensive drinks like pumpkin spice lattes.

“The trend of spending on experiences continues,” Mastercard CEO Michael Miebach said during a quarterly earnings call late last month. “We saw notable strength in airline, accommodation and restaurant spending, with an exit from categories such as home furnishings and appliances.”

The pullback in spending on goods has already warned some retailers of tougher times ahead. Amazon shocked investors at the end of October with a lower than expected forecast for the end of the year as e-commerce growth slows, and the company announced a hiring freeze. Appliance giant Tourbillon To cut his estimates.

Shipping giant fedex missed expectations in its September reportCEO Raj Subramaniam said he anticipates a “global recession”. WE retail sales were flat in September, a sign that inflation is taking its toll on consumers, since the numbers are not inflation-adjusted.

walmart, Target, Home deposit, Macy’s and others will deliver their own updates to investors in mid-November. Walmart and Target over the summer disappointed investors when they detailed the financial cost of excess inventory.

Permanent vacation

Travel spending has soared, in part due to flexible office policies that allow Americans to travel more and book European getaways long before traditional off-season.

In September, airline ticket sales were up more than 56% from a year ago and 10.9% from the same month in 2019, according to Mastercard Spending Pulse, which measures retail sales. in store and online. Accommodation sales were up more than 38% from a year ago and 42% from September 2019.

“Taking the annual vacation, I think, is a right for people”, Hawaiian airlines CEO Peter Ingram said in an interview last month. “After being deprived of this for a few years when there were restrictions on the ability to move around, people are really embracing it and coming out.”

United Airlines CEO Scott Kirby noted that more relaxed office attendance policies also allow people to travel more.

“That’s why September, a normally off-peak month, was the third strongest month in our history,” he said on the carrier’s earnings call.

Appetite for travel persists despite skyrocketing airfares fueled by pilot shortages and aircraft delivery delays. Last month, executives also said many people were even willing to pay for more spacious seats. Air fares rose 43% on the year in the latest reading of US inflation.

“Travel remains extremely resilient,” said Anna Zhou, an economist at the Bank of America Institute. Even after Labor Day, when travel normally slows down, “that’s just not the case this year, especially for international travel,” she said.

For now, airlines are dismissing concerns about the possibility of a recession.

“While there is noise as to whether we are heading into a recession or not or if we may even be in it now, we have not seen any noticeable impact on our booking and revenue trends,” said Southwest CEO Bob Jordan on Oct. 27. call.

‘Last Hurray’

The consumer is on hold.

Tim Quinlan

Wells Fargo Senior Economist

US credit card balances increased by $46 billion during the second trimester, a 13% jump that was the highest in two decades, according to the St. Louis Fed. Real estate and non-real estate debt have increased sharply since the start of the pandemic.

Credit card delinquency rates at the end of the second quarter hit 1.81%, the highest since the first quarter of 2021, according to the St. Louis Fed. But that’s well below the historical average, and consumers are still sitting on healthy savings accumulated during the pandemic.

The National Federation of Retail Trade, a major trade group, Thursday joins other industry watchers in predicting more modest holiday sales — and saying some of that spending will be funded by credit card debt and savings accounts rather than income.

Jack Kleinhenz, the group’s chief economist, acknowledged in a call Thursday that travel is also a spending priority for more consumers. Still, he said he sees it as a complement, not a compromise.

“You might say, ‘Well, damn it, that should take away retail sales because people are going to spend more on gas and on travel, plane tickets,’ but at the same time people are bringing food and gifts and we expect them to spend more on outfits.”

Travel may not be seeing a downturn because people often plan and pay for trips months in advance, said Jorge Barraza, assistant professor of consumer psychology at the University of Southern California.

“Maybe it’s just the kind of thing that people don’t see how much the prices have gone up and they’re willing to accept it because there’s a pent-up demand to travel,” he said. he declares.

And, he added, seeing friends or family post their trips on social media can motivate people to book vacations, even if it means dipping into their savings.

“When you have moments of stress and uncertainty, we’re more likely to see this YOLO behavior happen,” he said, referring to the phrase, “You only live once.”

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