Rising prices for travel yet to curb wanderlust

By Joanna Plucinska, Rajesh Kumar Singh, Doyinsola Oladipo and Priyamvada C

LONDON/CHICAGO/NEW YORK (Reuters) -The post-pandemic travel boom and the high ticket prices that come with it show no signs of slowing well into next year, despite economic uncertainty and dwindling household savings.

While questions linger about how much longer consumers will continue to indulge, airlines, hotels and analysts say travel has remained a top priority instead of the “nice to have” purchase as in years past.

International travel reached around 90% of pre-pandemic levels this year, according to the International Air Transport Association. The rebound was led by visitors to Southern Europe from cooler climates despite soaring temperatures and included swaths of American tourists flying overseas.

TUI, one of the world’s biggest holiday firms, on Wednesday reported its first post-pandemic net profit on the back of robust bookings and travel demand in the three months to the end of June.

“In the wake of the pandemic, a number of folks have reset their priorities and have focused on splurging on travel,” said Dan McKone, a senior partner at strategy consultancy L.E.K. Consulting.  

That desire may even strengthen next year, according to travel tech firm Amadeus, whose recent survey showed that 47% of respondents said international travel was a high-priority discretionary spending category for 2023 and 2024, compared with 42% who ranked it as such the previous year. Amadeus sampled travelers from Britain, France, the United States, Germany and Singapore.

Those trends lifted quarterly earnings of travel companies, with cruise operators like Royal Caribbean (NYSE:) reporting record results in recent weeks. Travel operators Booking Holdings (NASDAQ:) and Airbnb said revenue was up 27% and 18%, respectively, and air carrier Delta and hotel giant Marriott International (NASDAQ:) forecast strong future demand.

German carrier Lufthansa said bookings for the rest of the year currently exceed 90% of the pre-pandemic level and the summer season extending into October. United Airlines is expanding Pacific coverage this autumn with new flights to Manila, Hong Kong, Taipei and Tokyo.

Overall, global passenger demand is estimated to grow 22% year-on-year in 2023 and 6% in 2024, Moody’s (NYSE:) investor service said on Tuesday. Ticket prices, which in some cases have increased by double-digit percentages since the pandemic, are unlikely to plummet.

“Everyone is pricing against demand and this is the basic economic equation,” Jozsef Varadi, CEO of budget carrier Wizz Air, told Reuters. “We are in a high-input cost environment. So, that puts pressure on pricing.”

Travelers (NYSE:) to Europe and Asia are not expected to see substantial price relief this autumn, said Hayley Berg, lead economist at online travel agency Hopper.

She expects air fares on long-haul international routes to remain high until supply outpaces pre-pandemic levels, demand normalizes and jet fuel prices decline further.

The weak spot is U.S. domestic travel, as the end of COVID-19 testing restrictions has unleashed pent-up demand by Americans to take vacations overseas.

“They said earlier in the year, ‘Look, I’m going to do that international trip that we’ve been meaning to do,’ and that’s created a lot of crowded places with Americans in Europe,” Booking Holdings CEO Glenn Fogel told Reuters.

International inbound travel to the United States in May rose 26% year over year to 5.37 million visitors but is still about 20% lower than pre-pandemic visitor volumes reported in May 2019, according to the U.S. National Travel and Tourism Office.

Average domestic airfare is currently $246 round-trip, down 8% from 2022, according to travel booking app Hopper.

Executives said U.S. hotel rooms may become more expensive due to lack of supply, but softening demand may moderate that effect.

“Growth is expected to remain higher internationally than in the U.S. and Canada, where we’re seeing a return to more normal seasonal patterns,” said Marriott CFO Kathleen Oberg.

Looking ahead, some airline groups like British Airways owner IAG (LON:) said it is unclear whether demand can be sustained. Analysts have said dwindling consumer savings could cause a downturn in spending if inflation fails to let up.