What America’s foreign holidays tell us about the US economy

What America's foreign holidays tell us about the US economy

Forget Emily. These days, a whole flood of Americans are in Paris.

People spent 2020 and 2021 either confined at home or traveling to a minimum and mostly within the continental US, but after COVID travel restrictions were lifted for international travel last summer, Americans are going abroad again.

While domestic holiday travel shows signs of calming down – people are still on vacation Large numbers, but prices for hotels and flights are coming down as demand is strong but not insatiable – overseas travel is snap back with a vengeance. Based on preliminary data, Americans are boarding planes and cruise ships specifically to go to Europe.

According to AAA estimates, international travel bookings for 2023 were up 40 percent from 2022 through May. That’s still down about 2 percent from 2019, but a huge jump at a time when some travelers are being held for long periods passport processing Record-high delay between applications. Tour and cruise bookings are expected to eclipse pre-pandemic heights, with particularly strong demand for holidays in major European cities.

For example, Paris saw a huge jump in North American tourists last year compared to 2021, according to the city’s tourism bureau. Planned air arrivals for July and August this year rose by 14.4 percent, almost 5 percent above 2019 levels.

“This year has been absolutely insane,” said Steve Calvo, a Paris tour guide and hostess whose company – american in paris Tours of Normandy and the French wine regions are being brainstormed. He attributes some of the surge to the recovery from the pandemic and some to television shows and social media.

“‘Emily in Paris’: I’ve never seen so many people wearing red hats in Paris,” he said. the signature Chapeau, the heroine of the popular Netflix show, started attracting tourists last year. Other newcomers are eager to capture iconic photos for their Instagram pages.

“In Versailles, the Hall of Mirrors, I call it the Hall of Selfies,” Mr. Calvo said, referring to a famous room in the palace.

The strong travel booking numbers and anecdotes from tour guides are consistent with what companies are experiencing: From airlines to American Express, corporate executives are reporting steady demand for flights and vacations.

Ed Bastian, chief executive officer of Delta Air Lines, said during a June 27 interview, “The creative industry background none of us have ever seen.” investor day, “Travel is going gangbusters, but it will continue to go gangbusters because we still have a huge amount of demand waiting to be filled.”

Based on analysis by Omair Sharif at Inflation Insights, Transportation Security Administration data shows that the daily average number of passengers passing through US airport checkpoints in June 2023 was 2.6 million, up 0.5 percent from June 2019 levels Is.

And at many foreign airports, the rush of American vacationers is palpable: From Paris’s Charles de Gaulle to London’s Heathrow, customs lines are packed with American tourists. the latter saw 8 percent more traffic from North America in June 2023 compared to June 2019, based on airport data.

In a strange way, the boom in foreign travel may have eased some of the pressure on US inflation.

international flight prices, rising time For some routes, there isn’t a large portion of the US consumer price index, which is dominated by domestic flight prices. In fact, air fares in the inflation measure declined faster in June than in the previous month. down about 19 percent from a year ago.

That’s partly because fuel is cheap and partly because airlines are taking more planes into the sky. Many pilots and air traffic controllers were laid off or retired, so companies struggled to keep up when demand began to recover after the initial pandemic slump, causing prices to rise sharply in 2022 .

“Last year we didn’t have enough seats to travel,” Mr Sharif said, adding that although the personnel problem remains, the supply situation has been better so far this year. “The planes are still fully loaded, but there are more planes.”

And as more people are moving overseas, this is reducing some of the demand from hotels and tourist attractions in the United States. international tourist yet to return In full force in the United States, so they’re not exactly balancing the wave of Americans going abroad.

Domestic travel is hardly in free fall – possibly 4th of July weekend travel set new Record, per AAA — but tourists are no longer so greedy that hotels can keep raising room rates indefinitely. home away from home prices The US grew 4.5 percent in the year to June, which is much slower than the 25 percent annual increase in hotel rooms recorded last spring. is even Elbow Room at Disney World,

Even if it isn’t inflationary, the boom in overseas travel highlights something about the American economy: American consumers, especially the wealthy, are hard to put down.

The Fed has been raising interest rates since early 2022 to slow growth. Authorities make it more expensive to borrow money in hopes of creating a ripple effect that will cut demand and force companies to stop raising prices.

Consumption has slowed amid that onslaught, but it hasn’t come down. Fed officials commented at their last meeting that consumption was “stronger than expected”, the minutes showed.

Flexibility comes when many families remain in solid financial condition. People who travel internationally have become wealthier, and many are benefiting from a rising stock market and still-high house prices that are surprisingly immune to changes in interest rates.

Those who do not have large stock or real estate holdings are experiencing a strong job market, and some are still holding on to excess savings built up during the pandemic. And it’s not just vacation destinations feeling the momentum: Consumers are still spending on a wide variety of things. other services,

“This is the last blow to spending,” said Cathy Bostjanczyk, chief economist at insurance company Nationwide Mutual.

It may be that consumer resilience will help the US economy avoid a recession as the Fed battles inflation. As has happened with US hotels, stabilizing without a drop in demand can lead to a slow and steady reduction in prices.

But if consumers remain so starved that companies find they can still charge more, it could prolong inflation. That’s why the Fed is keeping a close eye on spending.

Ms. Bostjancic thinks beginning this fall, consumers will take a backseat. They’re drawing down their savings, the labor market is cooling, and it may just take time for the Fed’s rate hike to take full effect.

But when it comes to various types of travel, there is no end in sight.

“Despite economic headwinds, we are seeing very strong demand for summer holiday travel,” said Mike Dehr, who leads the US transportation, hospitality and services practice at consulting firm Deloitte.

Mr. Dehr attributes this to three driving forces. People missed their trips. Social media is attracting many people to new places. And the advent of remote work is allowing professionals — “what we call laptop lugers,” according to Mr. Dehr — to extend vacations by working a few days off at the beach or in the mountains.

Mr. Calvo, the tour guide, is riding the wave, taking Americans on tours that showcase Paris’ shared history with France and taking them on minivan tours to Champagne.

“I don’t know how long this will last,” he said.

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