Why consumers are flying high this holiday season
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A few years ago, the airline industry was in serious trouble.
The COVID-19 pandemic crippled travel, and U.S. airlines received $54 billion in taxpayer bailouts, according to the U.S. Department of Transportation.
Recovery was slow, and it took a few years for the industry to find its footing again.
Now, nearly four years later, airlines and airports are announcing record-breaking numbers. Much of the credit is due to holiday travel, which accounts for a good majority of the revenue.
AAA recently projected that nearly 119 million people will travel 50 miles or more from home over the year-end holiday period from Saturday, Dec. 21, to Wednesday, Jan. 1. This year’s domestic travel projection narrowly surpasses the previous record set in 2019 by 64,000 travelers. AAA also expects an additional 3 million travelers this holiday season compared to last year.
Demand for hotels and rental cars is up, too. That’s quite a rebound.
ASU News spoke to Lee McPheters, a research professor and director of the JPMorgan Chase Economic Outlook Center in Arizona State University’s W. P. Carey School of Business, to discuss the latest travel trends, spending habits of consumers and why people — and airlines — are flying high again.
Question: Before we get to the subject at hand, let’s discuss the state of airline travel in the wake and aftermath of the pandemic. The airline industry seemed to be on life support for a few years. When did it turn around, and what are the main factors that contributed to it?
Answer: The airline industry was hard hit by the pandemic, with revenue passenger miles down about 60% in 2020, and the recovery did not kick into high gear until a couple of years later. The rebound was related to several factors, including lifelines from government programs. The industry received about $50 billion in payroll support that prevented mass layoffs and kept aircraft flying. Meanwhile, government stimulus programs put money in the pockets of consumers so they were able to travel.
As COVID-19 fears eased, there was a leisure travel boom, sort of a backlash to restrictions and lockdowns, along with a desire for experiences over goods. Meanwhile, the airlines were flying more cargo due to supply chain disruptions, and the industry regained pricing power due to pent-up demand. Now, looking ahead, the International Air Transport Association, a key source of airline information, is forecasting global airline revenues will exceed $1 trillion in 2025, which is a stupendous comeback for the industry.
Q: What time frame are we talking about when discussing holiday travel, and what are the reasons people are traveling during this period?
A: The holiday travel season begins before Thanksgiving and extends until after the New Year. This is a period of almost all leisure travel, so the main drivers are the ability to pay (costs) versus benefits. The benefits are typically related to visiting family and friends, taking breaks or vacations during a slow period for many businesses, or attending events such as bowl games or other festivities. Consumers are willing to pay for travel because unemployment is low, there have been recent wage gains and many still have savings from past government stimulus programs.
Despite high interest rates, consumers are very often using their credit cards, which shows how much they value holiday travel. An unexpected boost to air travel has come from an awakening in the animal spirits of airlines. While airfares overall through most of 2024 were up about 4%, strategic pricing and competition have pushed holiday season ticket prices down by an average of 9%.
Q: What are the numbers showing, and how many people are shuttling through our airports?
A: The passenger numbers are at record levels this holiday season. The Transportation Security Administration screened over 3 million passengers on Dec. 1, and they expect the same in the days just before Christmas. For the week before Thanksgiving, TSA screened 18.3 million passengers, also a new record.
Q: What are some other industries being impacted by holiday travel?
A: Travel industry estimates project that some 46% of Americans plan to travel during this holiday season. AAA estimated more than 70 million people traveled by car over Thanksgiving, as fuel prices were down compared to last year. Surveys show that more travelers (56%) intend to stay with family or friends compared to 2023 (45%).
So far this year, hotel occupancy nationally has been up modestly from last year. At year-end, because of the surge in holiday travel, hotel occupancy rates have spiked and are expected to hit capacity at key destinations. However, rates are projected to be up only by about 2% over last year.
Whether staying with family or in hotels, visitors will be spending on car rentals and restaurants, with revenues expected to be up for 2024.
Q: Despite low unemployment, a record stock market and decreases in inflation, consumer surveys for the past year have been very critical, suggesting the economy is “poor” or “not on the right track.” How do you explain this paradox of low consumer sentiment and projected record spending for holiday travel?
A: To some extent, consumer pessimism is due to uncertainty about the future rather than current conditions, which are overall positive. However, this paradox of weak consumer sentiment and strong consumer spending shows the importance of the desire for meaningful experiences and maintenance of traditions, despite costs.
During the holiday season, the emotional benefits of spending time with friends and family offset the costs, although consumers know the piper must be paid when that credit card bill comes in.
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