How High is Too High?
Memorial Day weekend was quite busy this year and I hope you enjoyed it. I took most of Monday off, so this week’s post is lighter than usual. With inflation still elevated and rising risk of recession, it’s interesting to watch what’s happening with prices at the pump and airfares as the summer travel season gets going. Here’s a handful of different data points and some charts for a quick check on the inflation-as-travel-deterrent question.
According to AAA, Memorial Day travel was expected to almost be back to pre-pandemic levels and the summer travel season should be very busy.
If by road, Memorial Day travelers faced a national average gas price of $4.60 per gallon, also according to AAA, but prices are pushing $6 in Sonoma County. Both prices have risen over 50% in the past year.
Gas prices typically go up heading into summer but are obviously a lot higher than normal. The following charts from Bespoke Investment Group detail average Memorial Day gas prices since 2005 and how current prices have shot much higher than the typical seasonal curve.
If by air, travelers were seeing limited options, canceled or rerouted flights, and a huge year-over-year ticket price jump. Jet fuel is up about 116% in the past year, according to an airline industry group, IATA, which of course contributes to higher ticket prices.
But airlines are also making up for ground lost during the pandemic. Even with input costs rising, this is still expected to be a very profitable summer as demand remains high. For example, United Airlines told stock analysts recently that it expects its revenue per seat mile to be around 25% higher this season than during 2019. That’s a huge increase for the airline while flying 14% fewer flights than pre-pandemic levels, according to Reuters. In other words, airlines like United are directly and indirectly passing increased costs through to customers because they can. The following chart from the St. Louis Fed shows the CPI for airfares through April, but just imagine the line steepening into May and probably into summer as well.
Higher prices for air travel likely caused some folks to hit the road instead, but an average of over 2.2 million people still flew each day this holiday weekend, down about 8% from the same time in 2019 but up substantially from pandemic lows, according to data from the TSA.
So what to make of all this? Add it all up - inflation, the shaky stock and bond markets, recession fears, horrific events at home and abroad – Americans still want a vacation and after too long without, no cost seems high enough to dissuade them. Does that kind of elevated consumer demand indicate a recession around the corner? Hard to imagine immediate recession risk, but maybe that’s just me being optimistic on a day memorializing those who gave all to defend our way of life.
Here are links to the data points I mentioned.
https://www.iata.org/en/publications/economics/fuel-monitor/
https://www.tsa.gov/coronavirus/passenger-throughput
Have questions? Ask me. I can help.
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