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Travel has an edge over shopping this holiday season due to inflation

by SuperiorInvest

Retailers have a new threat this holiday season: roaming.

Americans are returning to the skies, filling hotels, thronging theme parks — and showing a willingness to spend more money on trips.

This set off the fiercest holiday battle for consumers’ wallets since the Covid pandemic, with persistent inflation already weighing on household budgets during a period when retailers were turning a profit. Retailers face additional challenges: selling off excess inventory, trying to lure consumers who have already bought a lot during the pandemic, and appealing to more budget-conscious shoppers.

It was a year of recovery for tourism. Delta Air Lines, MasterCard and Airbnb is among the companies that enjoy windfall earnings. Other companies have also signaled a shift toward experiences and services. A living nation showed a double-digit increase in attendance at theaters, arenas, stadiums and festivals. Starbucks said customers springs for expensive drinks like a pumpkin spice latte.

“The trend toward experiential spending continues,” Mastercard CEO Michael Miebach said late last month on its quarterly earnings call. “We’ve seen notable strength in airline, lodging and restaurant spending with a shift away from categories such as home furnishings and appliances.”

A reduction in spending on goods is already warning some retailers of worse times ahead. Amazon shocked investors in late October with a poorer than expected prognosis at the end of the year, when e-commerce growth is slowing and the company announced a hiring freeze. The consumer giant Whirlpool shear his estimates.

The shipping giant FedEx did not meet expectations in its September report. CEO Raj Subramaniam said predicts a “worldwide recession”. OUR Retail sales were flat in September, a sign that inflation is taking its toll on consumers because the data is not adjusted for inflation.

Walmart, target, Home Depot, Macy’s and others will deliver their own updates to investors in mid-November. Walmart and Target disappointed investors over the summer when they detailed financial tolls for excess inventory.

Permanent vacation

Travel spending has soared, thanks in part to flexible office policies that allow Americans to travel more and book trips deep into Europe. traditional off-season.

According to Mastercard Spending Pulse, which measures in-store sales and online retail sales, as of September, ticket sales are up more than 56% from 2019 and up 10.9% from the same month in 2019. Lodging sales were up more than 38% from the previous year and up 42% from September 2019.

“I think taking annual leave is an entitlement for people,” Hawaiian Airlines CEO Peter Ingram said in an interview last month. “After being deprived of that for a few years, when the ability to move was restricted, people have really embraced it and are coming out.”

United Airlines CEO Scott Kirby noted that more relaxed office attendance policies also allow people to travel more.

“That’s why September, normally an off-peak month, was the third strongest month in our history,” he said on the carrier’s earnings call.

The appetite for travel persists despite skyrocketing airfares, which have been fueled by pilot shortages and aircraft delivery delays. Management also said last month that many people are even willing to pay for roomier seats. Airfare is up 43% year over year, according to the latest US inflation data.

“Travel remains extremely resilient,” said Anna Zhou, an economist at the Bank of America Institute. Even after Labor Day, when travel normally slows down, “that’s just not the case this year, especially for international travel,” she said.

For now, airlines are brushing off concerns about the possibility of a recession.

“While there is noise about whether or not we are heading into a recession or whether we may be in one now, we have not seen any noticeable impact on our booking and revenue trends,” Southwest CEO Bob Jordan said of earnings from 27 .October. call.

‘Last Hurray’

The consumer is on borrowed time.

Tim Quinlan

Wells Fargo Senior Economist

US credit card balances rose by $46 billion during the second quarter, a 13% jump that was according to St. Louis Fed highest in two decades. Since the start of the pandemic, housing and non-housing debts have risen sharply.

The credit card delinquency rate reached 1.81% at the end of the second quarter, the highest since the first quarter of 2021, according to St. Louis Fed. However, this is well below the historical average and consumers are still sitting on healthy savings built up during the pandemic.

The National Retail Federation, a major trade group, on Thursday joined other industry observers in predicting more modest holiday sales — and said some of that spending would be financed by credit card debt and savings accounts, not income.

Jack Kleinhenz, the group’s chief economist, acknowledged on a call Thursday that travel is a spending priority for more consumers as well. Still, he said he sees it as a complement, not a compromise.

“You might say, ‘Well, gosh, that should reduce retail sales because people will spend more on gas and on travel, on plane tickets,’ but at the same time, people bring food and gifts, and we expect them to spend more on clothes.”

Travel may not see any decline because people often plan and pay for trips months in advance, said Jorge Barraza, assistant professor of consumer psychology at the University of Southern California.

“It might just be the type of thing where people don’t see how much prices have gone up and are willing to put up with it because there’s pent-up demand for travel,” he said.

And he added that when friends or family post about their trips on social media, it can motivate people to book a vacation, even if it means saving money.

“When you’re going through periods of stress and uncertainty, YOLO behavior is more likely to happen,” he said, referring to the phrase ‘You only live once.’

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