HOT TOPICS: U.S. Inflation, Gas Prices & the Conflict in Ukraine

Background: U.S. price inflation—and the rapid increase in gas prices—is not new to 2022 and the Russia/Ukraine war. Prices have been increasing throughout 2021.

How do we factor in the geo-political crisis and what does it change?

Prior to this new and heartbreaking crisis, we saw a year of steady increases.

• Gas prices declined slightly in December 2021 and January 2022. While they were expected to increase again, this was assumed to be short-lived. 

Historically, gas prices have not been a major deterrent for travel and 2021 proved to be no different. Road travel reached near-peak levels around Thanksgiving. With pent-up demand, the spring and summer seasons of 2022 looked bright since prices were not expected to rise much further.

The effect of the latest geo-political situation: The Russia/Ukraine war has challenged the hope that gas prices have reached a peak. While analysts have differing outlooks, people are fearful that no one really knows what will happen.

How this may affect travel: While people were willing to travel when they expected elevated prices to linger, the current situation creates an unknown. How much higher will prices rise? This is something we will continue to monitor.

• By the numbers: Destination Analysts found that 62% of Americans continue to say that travel will be a high budget priority over the next three months, despite the higher costs.

Yes, but: Many have expressed concern about rising costs, with one-third of respondents in that same survey reporting that high travel prices have kept them from traveling in the past month.

The impact on airlines: So far, airlines have not cut their summer schedules and are expecting their planes to fill up. We expect that some of the burden of increased costs may be passed on to customers while others will likely be absorbed by airlines. But there is really no precedent for the confluence of a global pandemic, war in Europe, and high oil prices.

However, we are hopeful that travel will benefit from the following:  

• There is a very high level of pent-up demand as the pandemic wanes. Longwoods reports that  92% of Americans have plans to travel in the next six months.
   
• There is a new opportunity for urban areas to fill their hotels and attractions since many may be hesitant to travel to rural areas due to higher fuel prices. Cities have suffered greatly in the pandemic, and with closer proximity to population centers and easier public transportation options, they have a renewed opportunity to attract Americans who may wish to spend less time commuting and stay closer to home. Urban destinations will also attract international travelers, who will see the U.S. as a safe destination, far away from the war.
   
• Rural areas and national parks have become favorites during the pandemic and will remain popular. National parks, as well as many state parks, have already been worried about overcrowding this summer and some have been forced to create a reservation systems. A slight decrease in road trippers may end up being a blessing in disguise for these destinations.
   
• After two years of COVID-19 restrictions, international travel is also expected to see a comeback this summer. In addition to the many visitors who were already expected to come to the U.S., the geopolitical situation may persuade others, particularly Europeans, to choose the U.S. over destinations in Asia, which are now requiring longer flight paths. The U.S. will also be seen as a safe destination, far away from the war, and may attract travelers who would have otherwise traveled to Europe.

Overall, there is great hope that the spring and summer of 2022 will represent a true return to pre-pandemic travel, both domestically and for inbound travel, despite the ongoing inflation concerns.

• Yes, but: There is one major disadvantage for the U.S., and that is the ongoing requirement for testing upon arrivals when most other countries no longer require it. The U.S. has a unique opportunity to attract a large number of international travelers, helping the travel industry stay strong at a time of uncertainty. It is imperative that we follow the lead of the U.K. and other major markets in dropping the cumbersome testing requirement and all remaining COVID-19 restrictions.