When you consider the performance of the travel industry in 2022, you have to consider the pandemic. Every time a new variant is announced, lockdowns are considered, and the share trading prices of travel stocks experience volatility. The rollercoaster ride in the travel sector continues despite the West’s pent-up demand. The second variant of the omicron variant sidelined travel within China, spreading to other countries in the East. As COVID-19 restrictions are easing travelers to be more willing to purchase airline tickets and go on road trips, higher fuel prices and higher costs for lodging could generate headwinds.
The Recent History of the Travel Industry
As the pandemic started to spread, first through China, then Western Europe, the United States and the rest of the world, travel came to a halt. The ensuing lockdowns destroyed leisure travel, and only essential traveling was allowed. The lockdowns worldwide were so pervasive that oil prices, the key fuel in transportation, declined into negative territory. No one ever thought a commodity product like oil could have a negative price until this period when demand sunk to historically low levels.
The cost to store oil exceeded the value of the product, pushing the price into negative territory. One of the most pertinent statistics for the travel industry in the West is U.S. Transportation Security Administration checkpoint numbers. In April of 2020, they dropped to 4% of the levels seen at the same time in 2019.
What is clear is that demand has returned to the travel industry in 2022 regarding air transportation. The snapback in TSA travel numbers was rapid, as the numbers increased by fifteen-fold in April 2021 and have continued to surge in 2022, nearly reaching the TSA numbers seen in 2019. Almost all the increase in air travel in the United States is leisure travel. More than two years after the pandemic started, business travel has yet to return. While there are green shoots of economic recovery that see business travelers back to attending conferences, the previously common act of traveling to visit clients has been replaced with a video call.
Expense accounts that permit business people to travel across the globe have not followed in the footsteps of leisure travel. Some top airline executives believe that business travel will continue to return slowly. The International Air Transport Association has revised its airline loss estimate for 2022 to $30 billion due to lack of travel. The difference between business and leisure travels for the airline industry is the lack of demand for premium seats, especially business and first-class seats.
Vacation Plans are Trending Higher
Americans are planning vacations in the wake of the lockdown and several bouts with COVID variants. According to Deloitte, 40% of Americans plan to take at least one trip with a flight or a stay at paid lodging between Memorial Day and Labor Day.
One of the issues that many Americans will face is the elevated costs of airline fares. According to the St. Louis Federal Reserve, Airline fares in U.S. cities have increased 23% year over year.
Hotel costs have also surged higher. According to the St. Louis Federal Reserve, Hotels Costs have increased 26% year over year. As restrictions are easing, the surge in demand has generated a rush in air travel and hotel demand. Americans seem to be willing to overlook higher prices. Unfortunately, the alternative, which is driving, will also cost Americans more. The average price of gasoline in the United States in March 2022 was $4.32, compared to $2.89 at the same time last year. The average gasoline price in the United States is 49% year over year. This scenario will make automobile travel even more expensive compared to the percent increase in air travel. Fortunately, wages have also been rising. While not at the pace of gasoline or air travel, wages have increased 5.6% year over year, helping Americans afford some leisure time.
The share trading returns experienced by some of the largest airlines have not been impressive. For example Delta, one of the U.S.’s largest airlines, has seen its share price decline yearly. Part of the decline has been the lack of consistency in travel due to restrictions, and part has been the difficulty of dealing with rising fuel prices.
The Bottom Line
The upshot is that the travel industry is still in the process of reemerging from the pandemic. Business travel is still tepid, but the TSA numbers in the United States show an uptick in the number of travelers, nearly equaling what was seen in 2019.
One of the headwinds the travel industry will face is higher prices. Hotel, airline, and gasoline prices have increased substantially year over year, making it more expensive for Americans to go on a vacation. Despite these higher prices, pent-up demand has led to an increase in travel plans, with nearly half the citizens in the United States having plans to travel and either using an airline or paid lodging during the critical unofficial summer vacation season.
