America’s Foreign Vacations Tell Us Something About the U.S. Economy

Forget Emily. A lot of Americans are coming to Paris these days.

People spent 2020 and 2021 either shutting themselves at home or traveling sparingly within the continental United States, but after COVID-19 restrictions on international travel were lifted last summer, Americans Heading abroad again.

Domestic leisure travel shows signs of calming down, but people still on vacation However, hotel and flight prices have calmed down as demand has proven to be strong but not insatiable. snapback with tremendous force. Based on early data, Americans are flocking to planes and cruise ships, especially to Europe.

AAA estimates that international travel bookings in 2023 increased by 40% from 2022 to May. That’s still down about 2% from 2019, but it’s a big increase at a time when some travelers have been on hold for a long time. Passport processing Delays are occurring amid record numbers of applications. Bookings for tours and cruises are expected to surpass pre-pandemic highs, with demand for holidays to major European cities particularly strong.

For example, according to the City of Paris Tourist Office, Paris saw a significant increase in North American tourists last year compared to 2021. Scheduled air arrivals in July and August this year increased another 14.4%, nearly 5% above 2019 levels.

“It’s been a completely crazy year,” said Steve Calvo, Paris tour guide and sommelier. american in paris — Frequent visits to Normandy and French wine regions. He attributes part of the rise to the backlash from the pandemic and part to TV shows and social media.

“‘Emily in Paris’: I’ve never seen so many people in Paris wearing red berets,” he said. sign The escorts of the heroines of popular Netflix shows began appearing in front of tourists last year. Other newcomers want to take coveted photos for their Instagram pages.

“The Hall of Mirrors in Versailles, I call it the Selfie Hall,” Calvo said, referring to the palace’s famous room.

Strong travel bookings and tour guide anecdotes are consistent with what companies say they are experiencing. Executives from airlines to American Express report sustained demand for flights and vacations.

“The positive backdrop for the industry is unlike anything we’ve seen before,” Delta Air Lines CEO Ed Bastian said at a June 27 briefing. investor day. “Travel is in turmoil, and will continue to be in turmoil because there is still huge demand.”

According to Transportation Security Administration data, an analysis by Inflation Insights’ Omer Sharif found that the average daily number of passengers passing through U.S. airport checkpoints in June 2023 was 2.6 million, compared with June 2019. 0.5% above the level of

And at many foreign airports, the surge in American tourists is palpable, with customs lines crammed with American tourists from Charles de Gaulle in Paris to Heathrow in London. there isI saw the latter 8% more traffic Based on airport data, departures from North America increased in June 2023 over June 2019.

Oddly enough, the rebound in international travel may have eased some inflationary pressures in the US.

international flight ticket prices, while soaring For some routes, domestic ticket prices do not make up a significant portion of the US consumer price index. Indeed, inflation-fighting airfares fell sharply in June from the previous month, Nearly 19 percent decrease From 1 years ago.

One reason is that fuel is cheaper, and one is that airlines are putting more planes into the skies. As many pilots and air traffic controllers were laid off or retired, companies struggled to keep up as demand began to recover from the initial downturn caused by the pandemic, leading to significant price increases in 2022.

“Last year there weren’t enough seats,” Sharif said, adding that while personnel issues remained, supply had improved so far this year. “The plane is still full, but there are more planes.”

And as people flock abroad, they’re robbing some of the demand from U.S. hotels and tourist attractions.foreign tourist not back yet So it’s not completely offsetting the wave of Americans going abroad.

Domestic travel hardly depressed – 4th of July weekend trips probably set new According to AAA, tourists are no longer insatiable enough that hotels can keep raising room rates indefinitely, albeit in the record. Fees for staying away from home In the U.S., hotel rooms grew 4.5% in the year to June, far slower than the 25% annual growth in hotel rooms last spring.there is even Elbow Room at Disney World.

Even if it’s not inflation, the surge in international travel highlights something about the U.S. economy. That is, it is difficult to curb spending among American consumers, especially the wealthy.

The Fed has been raising rates since early 2022 to curb growth. Officials are raising borrowing costs in hopes of reducing demand and creating a knock-on effect that will discourage firms from making big price hikes.

Consumption is slowing amid this onslaught, but not depressed. Fed officials took note of this, saying consumption was “stronger than expected” at the last meeting, according to the minutes.

Resilience comes from many households remaining on solid financial footing. Those who travel abroad tend to be wealthier, many benefiting from rising stock markets and still-high house prices, which are beginning to prove surprisingly insensitive to changes in interest rates. .

Those without large stocks or real estate holdings are experiencing a strong job market, and some are still holding onto the extra savings they accumulated during the pandemic. And it’s not just vacation destinations that are feeling the momentum. Consumers are still spending for a variety of purposes. other services.

“We are seeing the final explosion in spending,” said Kathy Bostjancic, chief economist at insurer Nationwide Mutual.

Consumer resilience could help the U.S. economy avoid a recession as the Fed battles inflation. As is the case with hotels in the United States, if demand stabilizes rather than plummeting, it could slow down price increases slowly and steadily.

But if consumers remain greedy enough that businesses decide they can still charge extra, inflation could linger. That’s why the Fed keeps a close watch on spending.

Bostjancic believes consumers will pull out starting this fall. They’re draining their savings, the labor market is cooling, and it may just take time for the Fed’s rate hikes to have the full effect.

But there is still no end in sight when it comes to different types of travel.

“Despite the economic headwinds, we’re seeing very strong demand for summer leisure travel,” said Mike Daher, head of U.S. transportation and hospitality services at consulting firm Deloitte.

Daher attributes it to three driving forces. people missed the trip. Social media is luring people to new places. And with the advent of remote work, professionals — what Daher calls “laptop couriers” — can work from the beach or the mountains for a few days to extend their vacations.

Tour guide Calvo is riding the wave, taking Americans on tours of the shared history of Paris and France, and taking them on minivan tours to Champagne.

“I have no idea if it will continue,” he said.

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