As we head into 2025, the global economy has been holding up well, despite pockets of weakness and plenty to worry about. Skift has covered how the economy impacts the travel industry throughout the years, and we turned to our Ask Skift 2.0 to see the different factors at play. Our answer engine used information that’s appeared in our past news coverage, and we also did additional reporting.
What Ask Skift Said
The economy significantly impacts the travel industry in various ways, affecting consumer behavior, business operations, and market dynamics. Here’s a breakdown of how economic factors influence the travel sector:
Consumer Spending and Travel Demand: Economic conditions directly affect disposable income and consumer spending. In times of economic prosperity, people tend to spend more on travel and leisure activities. Conversely, during economic downturns or recessions, consumers may cut back on travel expenses, opting for shorter trips, budget-friendly destinations, or delaying travel plans altogether.
Airlines and Travel Prices: Airlines can be particularly sensitive to economic fluctuations. In a robust economy, demand for premium travel and long-haul flights tends to rise, benefiting major carriers. However, during economic slowdowns, low-cost carriers often perform better as travelers seek more affordable options. Airline pricing strategies, including ticket prices and ancillary fees, are often adjusted based on economic conditions.
Hotel Industry: The hotel sector also experiences shifts in demand based on economic health. Luxury hotels may thrive in prosperous times due to increased spending on high-end experiences, while budget accommodations may see higher occupancy during economic slowdowns. Economic factors can influence hotel rates, occupancy levels, and revenue per available room.
Global Economic Trends: The economic environment in different regions affects travel patterns. For instance, a strong currency in one country can make outbound travel more appealing to its residents, while economic instability in another region can deter inbound tourism. Economic developments in countries like China and India, as well as regions like the Middle East and North Africa, play a role in shaping global travel dynamics.
Business Travel: Economic conditions impact corporate budgets, influencing business travel policies. Companies may reduce travel expenses during downturns, opting for virtual meetings or fewer in-person engagements. However, some sectors, like technology, may continue to support business travel due to ongoing investments and global operations.
What Else You Need to Know
Travel’s Recession Resistance: Senior Research Analyst Pranavi Agarwal wrote in September that if a recession were to occur today, the travel industry could be a little more insulated than during previous recessions.
“Pre-Covid travel was a fully discretionary item,” Agarwal wrote. But now it’s more of a “fundamental need.”
Skift Research’s U.S quarterly consumer tracker last May found that higher prices were indeed impacting consumers, with 67% stating their vacation plans were affected by higher prices in the first quarter. But as travel has become more important to consumers post-Covid, Agarwal noted an economic downturn that sees prices jump could drive more travelers to turn to loyalty and credit card programs to get more value for their money.
Economic Struggles Drive Chinese Travelers to be More Cautious: CNBC reported in September that China’s lackluster economic recovery was driving more Chinese to take last-minute trips. Marriott International CEO Anthony Capuano said more Chinese consumers were booking hotels as late as three days in advance, adding that was the lowest level he’s ever seen and much shorter than the nearly 20-day booking window for consumers elsewhere.
As part of its strategy to increase tourism and boost its struggling economy, China announced multiple expansions in 2024 to its visa-free entry program. Visitors from 38 eligible countries, including Japan, can now stay in China without needing a visa for 30 days, up from the previous limit of 15 days. Chinese authorities also expanded the country’s visa-free layover period to 240 hours.
Low-Cost Carriers Benefit During Economic Struggles: Low-cost carriers have generally fared well in the event of a recession, with more travelers willing to forgo premium amenities in times of economic uncertainty.
“If people are pinched economically, it’s only natural they turn to budget alternatives,” said Jay Shabat, senior analyst at Airline Weekly.
“Although United, Delta, and American now offer discounted options as well, low-cost airlines, despite a recent period of inflation, retain cost advantages that enable them to discount more aggressively.”
Skift Airlines Editor Gordon Smith also sees advantages for budget carriers during economic downturns.
“With less disposable income, some travelers will forego the niceties of big-name network carriers and consider low-cost alternatives,” Smith said, adding that despite their “eye-catching headline fares,” budget carriers’ unbundled pricing models often result in their total prices being higher than those of legacy carriers.
A prolonged economic downturn can also impact where travelers fly on vacation. “For U.S. consumers, think Mexico instead of Mykonos. For Europeans, it might be Türkiye instead of the Turks and Caicos,” Smith said. “This benefits low-cost airlines whose route networks typically have a short and medium-haul focus.”
Inflation Impacting People’s Travel Budgets: More than half of 2,200 travelers surveyed by Morning Consult for the American Hotel & Lodging Association said they were less likely to plan an overnight trip in 2024 due to inflation. Senior Hospitality Hospitality Sean O’Neill wrote rising non-travel costs were eating into people’s travel budgets.
In addition, Booking Holdings Chief Financial Officer Ewout Steenbergen believes inflation is hurting the U.S. travel industry, with many consumers holding off on finalizing their travel plans.
“We haven’t seen so much of a movement in the U.S. around the booking window recently,” Steenbergen told Bloomberg in December about the metric for consumer sentiment that measures how far in advance a traveler books a trip. Short booking windows mean consumers book travel very close to the start of their trips.
That’s in contrast to Europe, where Steenbergen said travelers were booking their trips earlier.
Steenbergen added that demand in the U.S. was lower than in other parts of the world due to “bifurcation.” He said luxury travel demand was still strong while lower-income travelers were feeling pressured, with some trading down for shorter trips or lower-quality lodging.
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