The end of US revenge travel has arrived

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Americans’ urge to splurge on pricey vacations is fading.

After the pandemic put the brakes on the travel industry, leisure spending bounced back strongly over the past two years. All that pent-up demand from the pandemic is at risk of being tapped out. If “revenge travel” was the buzz word in 2023, then “normalised demand” is poised to be this year’s corporate catchphrase. Investors should adjust their expectations accordingly.

Hotel operator Marriott International is among the spate of leisure companies that said demand for travel was normalising, particularly in the US and Canada. Revenue per available room (RevPAR) or room revenue for leisure travellers from the region was flat year on year during the first quarter. Meanwhile US online travel site Expedia cited lower than expected growth in gross bookings for lowering its full-year guidance. At Southwest Airlines, first quarter revenue per available seat mile (RASM) came in at the low end of the airline’s own forecast amid softening demand from leisure passengers. Even Airbnb is seeing a slowdown. It said customers booked 132.6mn nights and experiences in the first quarter. That was 9.5 per cent ahead of the same period a year earlier, but the slowest pace of growth since the pandemic. 

Overall, RevPAR for the hotel industry in the US fell 2.2 per cent in March, the first year-on-year drop since the pandemic, according to CoStar, a property data group. The decline in pricing power should come as no surprise. US hotel occupancy has declined year over year for 12 consecutive months, decreasing 2.5 per cent year on year in March.

There are bright spots. While US growth has stagnated, demand in Europe and Asia has been more enduring. This makes travel companies with more international exposure a safer bet. Expedia for example makes almost two-thirds of its revenues from the US. At rival Booking, the figure is closer to 10 per cent. The latter credited strong appetite for travelling in Europe and Asia for the robust gains in bookings and revenues in its most recent quarter.

Corporate travel, which was slower than the leisure segment to recover from the pandemic, also offers some comfort. The number of domestic trips taken by business travellers is expected to increase 7 per cent this year, compared to a 1.9 per cent increase for leisure travellers, according to the US Travel Association. 

Business travellers tend to pay higher airfares and hotel rates. This is good news for companies that cater to this group such as Delta Air Lines and Hilton Worldwide. Over the past 12 months Delta, Hilton and Booking have outperformed their group peers. Expect the gap to persist.

pan.yuk@ft.com