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Global Economy and Post-Pandemic Travel Demand

July 23, 2024

Note: We reveal investment insights through the quotes of top business leaders.

Key Takeaways

  • The global economy is growing but faces challenges from inflation, geopolitical tensions, and fiscal spending.
  • Post-pandemic consumer behavior shows a shift towards experiences over goods, with increased leisure travel and higher average daily rates.
  • The travel industry is recovering robustly, with significant improvements in corporate travel and strong demand.
  • Inflation and rising fuel prices are impacting travel costs, affecting operating margins and earnings for airlines.
  • Technological advancements, particularly in AI, are enhancing the travel experience and operational efficiency.

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Current State of the Global Economy

The global economy in 2024 is growing but faces challenges from inflation, geopolitical tensions, and fiscal spending. Key concerns include conflicts in Ukraine and the Middle East, and tensions with China. The U.S. economy remains a significant global player, with fiscal spending acting as a major tailwind.

"JPMorgan Chase’s current outlook for full-year 2024 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client and customer activity levels, and regulatory and legislative developments in the U.S. and other countries where the Firm does business." --- (JPM, sec filing, 2024/Q1)

"Business Environment During the first quarter of 2024, the global economy grew, but economic activity continued to be impacted by concerns about inflation and ongoing geopolitical stresses, including tensions with China and the conflicts in Ukraine and the Middle East." --- (GS, sec filing, 2024/Q1)

"And then the other way I would say as well is that going back in, at least in this life cycle of our sort of economic growth, the U. S. Economy is dynamic and it's very important globally." --- (BAC, conference, 2024/05/08)

"If we have global macroeconomic problems as a result of geopolitical situations, that's not only a problem outside the U.S. That affects the global economy, and therefore the U.S., and therefore our corporate customers, et cetera, et cetera." --- (JPM, earning call, 2024/Q1)

"And the fiscal spend, particularly in the United States, but I'd say globally, but particularly in the United States, is a big tailwind." --- (GS, conference, 2024/05/30)

Changes in Consumer Behavior Post-Pandemic

Post-pandemic, consumer behavior has shifted towards higher average daily rates (ADRs) and preferences for Vrbo and high ADR geographies (EXPE). There's a notable move from goods to experiences, with increased leisure trips (MAR). While travel demand remains high, there's a moderation from peak levels (DIS). Direct mobile app bookings and repeat behavior are on the rise (BKNG), and domestic travel shows strong resilience (HLT).

"While trends are starting to normalize, our lodging business has seen a significant increase in ADRs compared to pre-pandemic levels, which were driven by broader industry trends, a mix shift to Vrbo and high ADR geographies." --- (EXPE, sec filing, 2024/Q1)

"But when you really look more broadly about consumers' desire for experiences and a bit of a shift away from goods towards experiences and the fundamental increase in leisure trips even before COVID, I think we're very excited about the outlook for our industry, frankly, for years to come." --- (MAR, conference, 2024/06/04)

"As it relates to demand, while consumers continue to travel in record numbers and we are still seeing healthy demand, we are seeing some evidence of a global moderation from peak post-COVID travel." --- (DIS, earning call, 2024/Q2)

"The significant majority of room nights booked on our mobile apps are direct, and we continue to see favorable repeat direct booking behavior from consumers in our mobile apps, which allow us more opportunities to engage directly with consumers." --- (BKNG, sec filing, 2024/Q1)

"And what’s happening there is what we said in our prepared remarks is that you had a lot of resilience coming out of the pandemic with domestic travel really fueling strong demand growth there." --- (HLT, earning call, 2024/Q1)

Recovery of the Travel Industry

The travel industry is recovering post-pandemic, with significant improvements in corporate travel and revenue growth (AAL). Despite disruptions, managed business revenues have returned to pre-pandemic levels (LUV). Strong demand and increased travel volumes (DAL) indicate robust recovery, while capacity adjustments on peak days reflect industry adaptation (UAL).

"This disruption and subsequent recovery efforts resulted in the cancellation of more than 16,700 flights during the period from December 21 through December 31, 2022." --- (LUV, sec filing, 2024/Q1)

"Additionally, we have seen sequential improvement in the recovery of managed corporate travel and domestic business revenue growth outpaced capacity growth in the first quarter." --- (AAL, earning call, 2024/Q1)

"Delta's industry leadership has never been greater, and while demand for air travel remains strong, with record TSA travel volumes up 7% from last year's levels, domestic industry [seat] (ph) growth has accelerated through the summer months, impacting yield performance in the main cabin." --- (DAL, earning call, 2024/Q2)

"We also see the industry altering capacity on peak travel days more than usual later this summer." --- (UAL, earning call, 2024/Q2)

"First quarter 2024 managed business revenues (defined as travel booked through the Company's managed business tools) strengthened sequentially, finishing roughly flat when compared with first quarter 2019 levels, and up approximately 25 percent, year-over-year, partially as a result of the first quarter 2023 deceleration in bookings following the operational disruption." --- (LUV, sec filing, 2024/Q1)

Impact of Inflation and Fuel Prices on Travel

Inflation and rising fuel prices have significantly impacted travel costs. Delta and United Airlines reported increased fuel expenses, with Delta's total fuel expense rising by $218 million and United's by $313 million. American Airlines and Southwest Airlines forecast fuel costs between $2.70 and $2.80 per gallon, affecting their operating margins and earnings. Royal Caribbean also noted fuel cost impacts on financial metrics, highlighting the broader industry challenge.

"Fuel expense and average price per gallon Average Price Per Gallon Six Months Ended June 30, Increase (Decrease) Six Months Ended June 30, Increase (Decrease) (in millions, except per gallon data) 2024 2023 2024 2023 Fuel purchase cost (1) $ 5,490 $ 5,497 $ (7) $ 2.75 $ 2.91 $ (0.16) Fuel hedge impact 28 (39) 67 0.01 (0.02) 0.03 Refinery segment impact (108) (266) 158 (0.05) (0.14) 0.09 Total fuel expense $ 5,410 $ 5,192 $ 218 $ 2.71 $ 2.75 $ (0.04) (1) Market price for jet fuel at airport locations, including related taxes and transportation costs." --- (DAL, sec filing, 2024/Q2)

"The table below presents the significant changes in aircraft fuel cost per gallon in the three months ended June 30 (in millions, except percentage change and per gallon data): 2024 2023 Increase (Decrease) % Change Fuel expense $ 3,133 $ 2,820 $ 313 11.1 % Fuel consumption (gallons) 1,134 1,062 72 6.8 % Average price per gallon $ 2.76 $ 2.66 $ 0.10 3.8 % Landing fees and other rent increased $101 million, or 13.2%, in the second quarter of 2024 as compared to the year-ago period, primarily due to rate increases at various airports, terminal expansions and other increases in the number of airport gates and higher landed weight volume due to increased flight activity." --- (UAL, sec filing, 2024/Q2)

"Based on our current demand assumptions and fuel price forecast, we expect to produce an adjusted operating margin of between 9.5% and 11.5% in the second quarter, and adjusted earnings per diluted share of between $1.15 and $1.45." --- (AAL, earning call, 2024/Q1)

"(b) Based on the Company's existing fuel derivative contracts and market prices as of April 18, 2024, second quarter and full year 2024 economic fuel costs per gallon are both estimated to be in the range of $2.70 to $2.80." --- (LUV, sec filing, 2024/Q1)

"Fuel vs. 2023 Approximately 5.4% Approximately 5.5% GUIDANCE Second Quarter 2024 Full Year 2024 APCDs 12.2 million 50.7 million Capacity change vs. 2023 4.6 % 8.1 % Depreciation and amortization $390 to $400 million $1,600 to $1,610 million Net Interest, excluding loss on extinguishment of debt $270 to $280 million $1,140 to $1,150 million Adjusted EPS $2.65 to $2.75 $10.70 to $10.90 SENSITIVITY Second Quarter 2024 Full Year 2024 1% Change in Currency $3 million $14 million 1% Change in Net Yields $29 million $120 million 1% Change in NCC excluding Fuel $14 million $60 million" --- (RCL, press release, 2024/04/25)

Government Policies and Travel Regulations

Government policies and travel regulations significantly impact the travel industry, with companies like Southwest Airlines, Carnival Corporation, Norwegian Cruise Line Holdings, Royal Caribbean Cruises, and United Airlines highlighting the costs, compliance challenges, and the need for updated policies to support industry goals such as decarbonization.

"The payment of any taxes, fees, and other government or airport-imposed charges is the responsibility of the Passenger and must be paid at the time reward travel is booked with a credit card, flight credit, or Southwest gift card." --- (LUV, press release, 2024/06/10)

"Updates to all policies and regulations are routinely and automatically shared with the fleet via a shore-to-ship data service within the LR OneOcean digital platform, which also automatically sends approved passage plans ashore for easy access to shoreside personnel." --- (CCL, press release, 2024/04/30)

"These costs include travel advisor commissions, air and land transportation expenses, related credit card fees, certain government taxes, fees and port expenses and the costs associated with shore excursions and hotel accommodations included as part of the overall cruise purchase price." --- (NCLH, sec filing, 2024/Q1)

"Policy: Summit participants agreed that a set of principles that outlines critical policy actions needed to support the industry's shared goal for decarbonization should be developed to inform progress for the International Maritime Organization (IMO). The shipping industry is in a critically important phase where the pathway to a sustainable future is now being shaped by concrete plans and actions." --- (RCL, press release, 2024/07/15)

"Compliance with laws, regulations, administrative practices and other restrictions or legal requirements in the countries in which we do business is onerous and expensive. In addition, changes to existing legal requirements or the" --- (UAL, sec filing, 2024/Q2)

Technological Advancements in Travel

Technological advancements, particularly in AI, are significantly enhancing the travel experience. Companies like Booking Holdings and Expedia Group are leveraging AI to improve customer service, streamline help centers, and support supply partners. These innovations are expected to make travel more efficient and accessible in the coming years.

"done, I believe that over the next few years it will become much better because of these technological advancements." --- (BKNG, earning call, 2024/Q1)

"Thanks to our advancements in AI, travelers can find the solutions they need fast in our completely updated Help Center." --- (EXPE, press release, 2024/05/14)

"In addition, customer service, which is a critical function that we provide to both our travelers and partners, is an area we believe will be meaningfully enhanced by AI advancements." --- (BKNG, earning call, 2024/Q1)

"With our significant global audience of travelers, and our deep and broad selection of travel products, we are also able to provide value to supply partners seeking to grow their business through sophisticated technology, a better understanding of travel retailing and reaching consumers in markets beyond their reach." --- (EXPE, sec filing, 2024/Q1)

"forward. And in February this year, we took another important step in that journey by initiating our 1st quarterly dividend.In addition to our strong financial results and capital return, we have made meaningful progress against our key strategic priorities, which include building towards our connected trip vision, expanding our merchant offering at booking.com, developing our AI capabilities and enhancing our Genius loyalty program." --- (BKNG, event transcript, 2024/06/04)

Future Outlook for Post-Pandemic Travel Demand

Record future bookings and growing demand for long-term leisure travel indicate a robust post-pandemic travel outlook. Cruise lines and airlines alike are seeing increased interest, with companies like Carnival and Southwest reporting unprecedented future bookings and planning. This suggests a strong recovery and growth in travel demand.

"Your line is now live. Robin Farley: Great. Thank you. I wanted to ask about the sort of the commitment 12 years out, just because one of the dynamics that had seemed like it had changed over the course of the pandemic is that other cruise lines are saying they're going to be ordering fewer ships and that means that by definition there will be slots available at shipyards in the future." --- (NCLH, event transcript, 2024/04/09)

"Accordingly, in the last three months not only did we take more bookings for post-2024 sailing than we did for in-year sailings, we set yet another record for the most future bookings ever taken during the second quarter." --- (CCL, earning call, 2024/Q2)

"Don't you have to price that to lose some of that demand? Andrew Nocella: What happened in this [indiscernible] case is during the pandemic, we had very high free load factors in some of these premium cabins, and that number is coming down more towards…" --- (UAL, earning call, 2024/Q1)

"We've got to make sure that it's fully absorbed. Demand, we know that people want to return to travel, so I expect great growth." --- (AAL, conference, 2024/05/29)

"We also are addressing a growing demand for longer-term leisure travel planning into places like Hawaii and to our international destinations. Book travel through March 5, 2025, now at Southwest.com." --- (LUV, press release, 2024/04/26)

See also