The travel industry is gearing up for another hot summer as Americans hit the road and head to the airport to take advantage of slightly cheaper flights and fuel. But the 2024 vacation outlook isn’t all that bright. Like the rest of the American consumer experience this year, it’s sharply divided.
Many affluent consumers, the lifeblood of the travel industry, have been feeling better this year as the stock market has strengthened and home prices have risen, adding to their wealth. They have been hit by the recent surge in inflation, but they are likely to have more room in their budgets and more options to ease the pain by downgrading from branded to generic, from Whole Foods to Walmart.
Poor households had less room to move to avoid the shock of higher prices. Although the job market is strong, unemployment is low, and wages have risen particularly fast at the bottom of the income scale in recent years, there are some signs of economic strain among low-income Americans. Credit card delinquencies are up, many low-income people report feeling less confident about their household finances, and companies that serve low-income customers report feeling stressed.
The gap between high- and low-income consumers has been widening for years, but it is expected to be particularly pronounced this summer. The survey found that wealthier households are more optimistic about their ability to travel, and services they are more likely to use, such as full-service hotels, are thriving. Budget hotel chains, on the other hand, are expected to report a slowdown.
“When you go upscale, you actually see growth,” said Adam Sachs, head of tourism economics at Oxford Economics. “A lot of it has to do with different financial situations across different income groups.”
Bookings, survey responses and spending trends so far suggest the travel industry will see a slowdown but healthy growth this summer and throughout 2024. That growth is expected after years of breathless vacations as people “get revenge” for the travel they missed during the pandemic.
Outbound international travel is still booming, domestic leisure travel is holding up, and even business travel is returning after a steep decline that began in 2020. Airfare-dollar spending may be down somewhat as airfares have fallen, but airports are reporting record traffic on key days of the week. AAA predicts Fourth of July travel will shatter last year’s strong performance.
“We’re seeing a lot of people on the road. We’re seeing people flying,” said Joshua Friedlander, vice president of research for the U.S. Travel Association. “We think that’s a sustainable level of growth.”
But this resilience is not uniform across income groups. The Federal Reserve Bank of Richmond reported in its latest anecdotal report on the Federal Reserve’s national economic experience that travel spending “has increased, driven primarily by consumers with discretionary income.” “In contrast, low- to middle-income consumers have held back, as higher costs have tightened household budgets,” the report said.
This adds to an established trend: Wealthy people tend to spend far more on luxuries like travel. The top two-fifths of the income distribution account for about 60% of economic spending; the bottom two-fifths account for about 22%. When it comes to vacations, the gap is even more extreme. One analysis found that low-income people have historically spent about 19 cents for every dollar that high-income people spend on accommodations, transportation, and other travel-related purchases.
Recent economic trends could make it worse. LaShonda Barber, an airport worker in Charlotte, North Carolina, is one of those in a tight spot. She will spend her summers on airplanes, but she won’t be leaving the airport for vacation.
At 42, Ms. Barber works 40 hours a week, earning $19 an hour, driving a garbage truck that cleans international flights. It’s a tough job. The tarmac is sweltering under the Southern summer sun, and the trash bags are heavy. As the busy summer approaches, Ms. Barber’s job is increasingly failing to pay the bills. Despite notable increases in housing costs and property taxes, she’s only making $1 an hour more than when she started five years ago. While this isn’t the norm (low-income wages have generally grown faster than inflation since at least late 2022), it’s a reminder that there are those who are falling short and falling behind.
“I don’t do solo travel,” said Mr. Barber, explaining that it had been several years since he had taken a family vacation, and when he did, he drove.
This is in stark contrast to what happens at the other end of the income spectrum.
Parker Hess is the housekeeping director at the Allison Inn and Spa in Oregon's Willamette Valley. Rooms start at $645, amenities include plush robes and idyllic wine country views, and business is booming.
“Our prices are higher than ever,” Hess said, and while customers sometimes push back, many don’t even ask about prices.
Hotel room rates are expected to be broadly divided this year. Jan Freitag, national director of hospitality analytics at CoStar Group, said he expects full-service hotels like Marriott and Sheraton to see room rates increase 2.1 percent this year, while midsize hotel rates will be essentially flat. He expects economy hotel room rates to fall completely as poor travelers refrain from traveling.
“I think low-income consumers are making choices between the must-haves and the wants,” Freitag said. “They have to pay their credit card bills, they have to pay their car insurance, and those things are expensive right now.”
The gap is evident in surveys, too. In the Bank of America Institute’s Summer Travel Survey, a higher share of households with annual household incomes below $75,000—roughly the national median—said they had no plans to travel this year compared to last year.
“This may indicate some additional caution among these consumers about making the financial commitment required to go on vacation,” the analysts wrote in the report.
Still, analysts point out that actual credit and debit card data have not yet shown a pullback. So far, they have shown that lower-income consumers are continuing to spend. That’s an important clue. Just because people report financial strain in surveys doesn’t necessarily mean they’ll cut back on spending.
And from an industry perspective, even if the survey is prescient and poor households do take fewer vacations this year, demand from the wealthy alone could be enough to fuel a strong and enthusiastic summer travel season.
That strong demand can fuel the overall economy. Domestic travel contributes to U.S. economic growth. International travel, however, does not, but it shows consumer confidence.
Erica Risner, 42, boarded a flight from Charles de Gaulle Airport outside Paris to Washington, D.C., after spending two weeks in Italy and France with her husband and two children.
She and her family spent about half of their trips with friends and relatives, and Ms. Reasoner said she did not travel abroad last year. A Denver resident, she said her job in custom home building is stable and her business is solid, and while she has noticed that food prices have gone up, recent inflation has not caused any problems for her family’s budget.
“We had been planning this trip for so long that the economy didn’t really factor into our decision,” she said. She said she realized not everyone was so lucky.