A Mastercard study finds travel is spiking — and so are airfares.
The Mastercard Economics Institute says the cost of travel remains elevated because of supply chain disruption and higher operating costs.
"Travel deficits triggered by the pandemic have expanded the operating expense burden for airlines and the broader transportation industry, resulting in higher fares for travellers in Asia-Pacific compared to their global counterparts," the survey finds.
Average airfares in the Asia-Pacific region remain elevated — roughly 11 per cent and 27 per cent above 2019 levels in Australia and Singapore respectively — due to supply-side constraints such as reduced staff numbers, which remain below pre-pandemic levels across the region.
In the United States, airfares are up 25 per cent in the last year, according to the Bureau of Labor Statistics, and jumped 16.8 per cent in April alone.
Delta said late last month that it expects second-quarter revenue will be back to pre-pandemic 2019 levels, even with fewer flights. The airline said revenue per seat should be up to 8 percentage points better than it originally expected.
The airline's chief executive, Ed Bastian, said during an investor conference that pricing this US summer would probably be somewhere between 25 per cent and 30 per cent higher on average, the Associated Press reports. "We've never seen anything of that scale," he said.
Speaking later at the same investor event, United Airlines chief executive Scott Kirby said fares are only back to where they were in 2014, after adjusting for inflation, and travel demand has proven to be unaffected by price.
Air New Zealand this year put up its base international fares by 5 per cent. Many of its one-way fares across the Tasman have been close to $1000 (as have Qantas fares) since travel restrictions eased, a long way from the $69 promotional deals it offered in March 2020 as travel started to collapse with the arrival of the pandemic.
A Stats NZ index shows domestic airfares have risen by 12 per cent from the first quarter of 2019 (before the pandemic) to the same period this year and international fares are up 50 per cent.
Auckland Airport is now handling about 40 per cent of its pre-pandemic international capacity and this will build throughout the year.
The Mastercard study found that through April 2022, the average airfare that travellers in all countries paid, adjusted for the distance flown, increased roughly 18 per cent since the start of the year.
Airlines are charging what they can to try to rebuild balance sheets pummelled by the collapse in demand during the pandemic, and now by rapidly surging costs.
Jet fuel prices are soaring. They had begun rising well before Russia's invasion of Ukraine and spot prices are up as much as 120 per cent this year.
Oil prices today are at their highest in three months.
The impact of fuel price rises is close to $200 billion across the industry and it now represents a much higher proportion of costs than it was pre-pandemic - as high as 50 per cent for low-cost carriers.
Labour costs have also risen sharply as airlines, airports and their suppliers compete to rehire staff in the face of surging demand. A shortage of staff has led to flight cancellations by airlines and congestion at airports around the globe, and when combined with other factors such as bad weather and infrastructure maintenance, chaos has resulted.
Last month the usually efficient Amsterdam Airport Schiphol had to close to many flights and British and US airports have also been hit by long delays and annoyed passengers.
Victoria Courtney, Flight Centre Travel Group's general manager product, said there were a number of factors contributing to higher airfares including limited capacity, high demand and high fuel prices.
The firm's advice to Kiwis keen to head abroad is to book early. Alternatively, a good way to find better availability and price is to explore alternative routes. For example, flying via Fiji to get to the US.
"Consider chatting with your local travel expert who will be able to find the best option to suit your budget. We're expecting more capacity to have returned by November and hopefully we will see prices come down as we head into the new year."
Revenge of the traveller
While New Zealand is reopening slowly, the Mastercard study finds travel surging elsewhere.
For the first time since the pandemic, business flight bookings have exceeded 2019 levels, a key milestone in the recovery.
If flight booking trends continue at their current pace, an estimated 1.5 billion more passengers globally will fly in 2022 compared to last year.
The United States, Britain and Spain were the top international travel destinations based on flight bookings, as longer-distance travel returned and long-haul leisure travel, which saw the steepest declines due to the pandemic, stages a "roaring comeback".
Starting the year at 75 per cent below pre-pandemic levels, it tracked to roughly 7 per cent below pre-pandemic numbers by the end of April.
Around the world, short- and medium-haul leisure flight bookings are now above 2019 levels, up 25 per cent and 27 per cent at the end of April respectively, turning positive for the first time since the pandemic around February this year.
Travellers are not only spending on flights. Despite "incredible challenges" in the cruise industry, spending on cruises globally, including bookings, is roughly only one-tenth below 2019 levels.
"This is another turnaround story, having started the year at roughly -75% below pre-pandemic levels."
Global spending on tolls and car rentals in 2022 has outperformed, up nearly 19 per cent and 12 per cent respectively relative to 2019 levels by the end of April.
Besides being a more accessible mode of transportation during the pandemic, supply chain bottlenecks drove the price of vehicle rentals to record highs.
For the first time since the pandemic, global spending on bus lines, including bus ticket sales, is back to pre-pandemic 2019 levels.
Passenger rail spending remains just shy of pre-pandemic levels (down 7 per cent).
"The momentum is undeniably strong across the broad transportation services industry — and like the airline industry, the recovery is strongest domestically."
And as hospitality struggles in this country, overseas spending on "experiences" like restaurants and concerts is roughly 34 per cent above 2019 levels and has been outpacing spending on "things" since July 2021. The rise in food prices could have accounted for some increased restaurant spending.
Holidays instead of handbags and Haines Hunters
Mastercard says that in 2020 and 2021, spending made a sudden, but not surprising, shift from services to goods. However, spending is now shifting back as travellers seek out experiences on vacation instead of souvenirs.
In April, international tourism spending at bars and nightclubs was 72 per cent above 2019 levels. International tourists are also spending 35 per cent more on amusement parks, museums, concerts and other recreational activities. By comparison, tourist spending on apparel, department stores, cosmetics and other retail categories is down compared to 2019.
The return of the "experience economy" is a global trend. From Britain and Germany to France and Italy, international tourism spending on experiences has measurably outperformed tourism spending on things since the summer of 2021.
In comparison, markets across Asia are a little more mixed. For example, South Korea, where borders opened in April, has seen virtually no inbound tourism, and Indonesia has seen less tourism for similar reasons — both showed signs of an upturn only towards the end of the month. Singapore, by contrast, enjoyed robust tourism demand throughout the entire month..
Ruth Riviere, country manager for New Zealand and Pacific Islands at Mastercard, said New Zealand was following the recovery seen in other countries that opened up earlier.
"People really are spending more on experiences than things. Locally, when we see our borders fully open and tourists coming back, that should be really good news for our hospo sector which has had a really challenging couple of years."
Clinical psychologist Jacqui Maguire says spending on experiences is connected to an overall sense of wellbeing and mental health.
"Conversely, if you look at material objects, the longevity impact on our wellbeing is very short. If you go and buy a new gadget or buy a new item of clothing, you feel good for a small moment, but it dissipates very quickly," she told the Herald.
"Over the last two and a half years people have been able to reflect and think about what's important to them. Experiences and connection with people enjoying is much more important to people now than consumerism."
Headwinds could be different this time
While spending on travel is highly discretionary, the Mastercard study says there are reasons why people will keep spending on it in spite of economic challenges.
People have paid off debt and other liabilities at a record pace over the last two years.
Higher-income consumers — those more likely to be travelling for leisure — are in a solid financial position driven by pandemic-fuelled excess savings and the rise in asset prices such as housing.
However this is not universal; lower-income people benefit less from asset price increases, especially those living payday to payday.
And higher prices for essentials, such as rent and fuel, cut into most people's spending on leisure travel.
But in markets where working from home is more prevalent, people spend less on commuting costs, which frees up some money for travel and other discretionary spending.
For example, the average American commuter saves roughly $US450 ($698) each year in commuting costs by working from home. In addition, the increased return to the office brings with it a return to business travel.
"While there are many reasons to be optimistic about the rest of the year, high inflation is a meaningful headwind to the travel recovery and adds to stock market uncertainty," the study says.
While incomes are expected to continue growing beyond 2022, the rising cost of goods and services puts a damper on people's purchasing power, especially for large-ticket goods and services and discretionary purchases like travel. This dynamic is likely to persist for the rest of this year for most markets.
"Consumer spending on travel is among the most sensitive industries to energy and food price shocks. However, given massive levels of pent-up demand in a post-pandemic world, this time could be different," Mastercard says.
The impact is likely to be more nuanced and uneven. Specifically, more price-sensitive travellers may stick closer to home, while less price-sensitive travellers, who are more likely to have more excess savings, may be less concerned with higher prices and eager to travel.
