From the price of eggs to the day-to-day costs of running a business, inflation seems to be the headline everywhere lately. With the doom and gloom surrounding soaring prices, you might think leisure travel would be one of the first expenses to go. You’d be wrong.
After years of pent-up demand for travel created by the COVID pandemic, leisure travel doesn’t show signs of slowing down any time soon. However, that doesn’t mean the effects of inflation and labor shortages aren’t being felt across the travel and hospitality industries.
Post-Pandemic Pent-Up Travel Demand
In 2022, we saw airline ticket prices soar while traveler demand remained elevated. In the absence of demand, inflation may have been enough to cause prices to moderate; however, as demand remains high the incentive to drop prices remains relatively low. Instead, airlines are packing flights full and cutting down to only their most lucrative routes.
Due to these route changes, larger hub airports remain busy throughout the day and night, while smaller airports find themselves busy only in spurts. This makes it difficult for smaller airports to offer services that drive nonaeronautical revenues, like shopping and dining options, due to erratic scheduling changes. While fewer routes and amenities may be frustrating to customers, airlines and airports are keeping their bottom lines front and center.
Hotels are navigating a different set of economic challenges: supply chain issues and labor shortages. The COVID pandemic caused many hoteliers to funnel monies to things like their leases, rather than room and facility infrastructure upgrades. With leisure travel back in full force, we have seen guest complaints about facilities rise three percentage points since 20191. However, despite quality going down and complaints going up, room rates have surged in price due to so called “revenge travel” demand.
Will Rising Prices Quell Traveler Demand?
Airline tickets and hotel room rates are up. Some airports are not able to offer amenities such as dining and shopping options. Routes are being offered less frequently or have been dropped all together. Shouldn’t this spell disaster for the travel industry?
It doesn’t look like it.
In fact, even with inflation on the rise and only 1 in 3 customers being considered “financially healthy,”2, a full 11% of respondents say they are planning to use their tax refund on a vacation (that’s an even higher percentage than those planning to use their refunds for childcare or tuition- only 6%)2. Even more heartening for the industry, a recent U.S. Travel Association quarterly consumer insights report shows that business travelers are expected to take more trips in the next six months as respondents highlight the benefits of face-to-face meetings3. It is also important to note that 81% of executives report that they consider business travel “essential.”3
What Will It Take to Moderate Prices?
Despite inflation’s effects on other consumer spending habits, it looks like the travel industry will continue to ride the wave of traveler demand (at least for now). However, it would be wise of the industry to consider just how much customer satisfaction they’re willing to let go of. When prices inevitably moderate and demand levels, CSAT differentiation will become more important than ever.
The RIGHT Data Makes a Difference
While inflation is a significant concern for both consumers and businesses, leveraging the power of data can help businesses provide thoughtful solutions that build loyalty and attract new customers.
J.D. Power experts are providing clients with valuable data and insights to help businesses make informed decisions to grow their client bases and deepen relationship with their customers. J.D. Power is committed to maintaining the highest standards in their research, ensuring that clients can make strategic decisions confidently. Explore our latest press releases with key findings on how inflation is impacting your business >>
12022 J.D. Power North America Hotel Guest Satisfaction Index
22023 J.D. Power Financial Services US Polaris Survey, Feb. 15-21
3https://www.ustravel.org/research/quarterly-consumer-insights (Jan. 31)
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