The rapid increase in the prices of airfare and gasoline has sparked concern about whether Americans will continue to travel. In May, the consumer price index was 130% higher for gasoline and 73% higher for airfare than it was during May of 20201. Airfare in particular has risen sharply since the beginning of the year due to high demand, smaller fleets, increased cost of jet fuel, and staffing challenges2. Domestic air travel within the United States is about 50% more expensive than it was last summer and 25% higher than it was in 20193. Lodging nightly rates are also considerably higher than last year. Despite the increasing cost of travel, consumers are willing to pay due to pent-up demand and higher household savings rates during the pandemic4. Between June 10 and June 16, TSA checkpoint volumes were only 11% below 20195.
Top of mind is whether increasing prices will negatively impact demand for vacation rentals. So far, the answer seems to be “not yet.” There is almost no correlation between the number of new guest reservations being made per active vacation rental unit and the price indexes for gasoline and airline fares. Despite price increases, reservation activity for the last few months has followed trends similar to 2019 and 2021, reflecting the current price insensitivity of travelers. The slowdown in new booking activity during the summer is normal - it’s the peak travel season rather than the peak booking season - and doesn’t appear to be driven by increasing costs.
The rising cost of air travel is especially concerning to destinations to which many guests fly. In markets like Hawaii; Orlando, FL; and Washington, D.C.; vacation rental reservation activity has remained on a recovery trajectory or even exceeded 2019 despite the increased cost of airfare. Domestic travel is fueling these destinations; in Hawaii, domestic travel is at an all-time high but international arrivals are still low5.
Because new reservation activity has stayed strong, vacation rental performance in fly-to markets has stayed strong. Revenue per Available Rental (RevPAR) is higher than 2019 in each of these six markets except for Seattle, which remains on a recovery trajectory. Hawaii and Orlando are great stories of resilience; post-covid recovery in both markets was delayed due to various factors, but summer RevPAR or 2022 is pacing around twice as high as it was in 2020.
At this point in the year, it’s challenging to attribute declining reservation activity to increasing airfare and gasoline prices because new bookings always slow during the summer after peaking in March. For now, reservation activity is remaining strong and hovering slightly above 2019 but slightly below 2021. However, there’s still time for things to change. Lower-rate destinations that rely on last-minute reservations may be the first to experience a slowdown since trips aren’t already booked and travelers are more price sensitive.
Sources:
- U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: Gasoline (All Types) in U.S. City Average [CUUR0000SETB01], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CUUR0000SETB01.
- Washington Post, This is Why Your Airline Tickets are so Expensive Right Now; https://www.washingtonpost.com/business/on-small-business/this-is-why-your-airline-ticketsare-so-expensive-right-now/2022/06/06/43be1baa-e5e6-11ec-a422-11bbb91db30b_story.html.
- NPR, Summer Air Travel Could be Expensive and Chaotic: Here’s How to Avoid Trouble; https://www.npr.org/2022/06/14/1104820079/summer-air-travel-could-be-expensive-and-chaotic-heres-how-to-avoid-trouble.
- Reuters, High Fares, Rising Economic Worries Could Weigh on Airline Recovery; https://www.reuters.com/business/aerospace-defense/global-airlines-narrow-losses-2022-outlook-improves-2022-06-20/.
- Airlines for America, Impact of COVID-19: Data Updates; https://www.airlines.org/dataset/impact-of-covid19-data-updates/.