R.holiday leave After a few tumultuous years, the urge to splurge on flights and hotels is likely to pay off. Tour operators are inundated with bookings. Hotel chains are making record profits. easyJet has raised its profit forecast twice this year. IAG Ryanair and Ryanair are back in the black for the first time since the pandemic began, and Singapore Airlines is giving out part of its record profit as a bonus equivalent to eight months’ salary. With airfares rising faster than inflation, airline executives around the world now expect net profits to more than double their initial estimates this year to $9.8 billion, according to the industry group International Air Transport Association. I expect it to be
The holiday boom has increased the prospects for international travel. Global tourist arrivals are expected to hit up to 95% of pre-pandemic levels this year, up from 63% in 2022. united nationsWorld Tourism Organization. After falling in early 2022 amid rising inflation and fears of a looming recession, travel company stocks have surged again (see chart). So far, the high prices have not deterred sunset travelers. “People are prioritizing travel over other discretionary spending,” said David Gugger of consultancy Oxford Economics. Cash saved during the lockdown is still plentiful, and many people splurge on holidays, even as they limit their spending on clothing and eating out.
How long the good times last depends on several factors. Some have to do with the supply side of the industry, such as airport staff shortages, skyrocketing jet fuel costs, and collapse. that Last year, the weight of demand crippled the system, leading to hours of flight delays and abrupt cancellations. Last summer, a quarter of all US flights were canceled or delayed. A meltdown like this undermines trust. It also costs. Southwest Airlines estimated that about 17,000 flights were canceled in December, costing it about $800 million.
An even bigger issue concerns demand. After a glorious summer is over, vacation cravings can crumble as quickly as they did. The US Federal Reserve has paused interest rate hikes, but is expected to raise them again in the coming months. Vacationers may eventually throw in their beach towels as the Fed and other rich-world central banks continue to battle stubborn inflation.
Chinese tourists, who were the third largest number of tourists in 2019 after Americans and Germans, according to Oxford Economics, may not be able to make up for the dip. Neighboring destinations such as Macau and Thailand have become popular since COVID-19 restrictions in China eased last year. But China’s enthusiasm for faraway places remains muted. Hotel giant Accor estimates that about three-quarters of Chinese travelers this year will opt for a “staycation” instead.
A lull in tourism would be bad news for a heavily indebted industry already facing higher spending and recovering from past losses. Airlines alone lost $138 billion in 2020. Credit rating agency Moody’s expects airline labor costs to rise by nearly a fifth this year. Short-staffed hotels are struggling to fill staff despite wage hikes. Wage bills in the UK are 15% higher than before the pandemic. After years of hiatus, the travel industry may be starting to see its day-to-day economic realities. ■
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https://www.economist.com/business/2023/06/15/how-long-will-the-travel-boom-last How long will the travel boom last?