2023 Travel Outlook May Be Dimming as Prices Clash With Layoffs and Inflation

Even as pent-up travel demand was unleashed throughout 2022 with airlines and lodgings firms reporting strong performance and outlook, the word “uncertainty” was used a lot and could be taking a more definable form as doubt has entered the picture for the travel sector in 2023.

While airline stocks soared on the 2022 travel resurgence as COVID restrictions fell like dominos across Europe, then ultimately Asia, some operators sounded notes of caution in fourth-quarter earnings reports, or more accurately, their outlooks for 2023.

Vacation home rental platform Vacasa was among those readying investors and analysts for an “anything could happen” year in 2023. On its Q4 earnings call on March 14, Vacasa CEO Rob Greyber said, “Today, we are operating in an environment that is more dynamic relative to the prior two record years. While I’m optimistic about Vacasa’s long-term potential, I see challenges which are fixable, but not yet fixed.”

Using language like “As the industry exits this period of record growth…” strikes a less bullish tone than was heard throughout the travel and hospitality sector through 2022, and Greyber also pointed to the fact that Vacasa had reduced its workforce by 17% in the preceding months.

Some of the rumblings are coming from Wall Street analysts weighing widespread layoffs across the tech sector against record-high prices for airfares, hotel rooms and restaurant meals, all of which spiked last year as inflation hit 40-year highs. Yet demand was undimmed to year’s end.

In January, however, Barron’s reported, “Analysts are getting jittery about online travel stocks, as the economy softens both in the U.S. and Europe. Concerns about the outlook spurred downgrades Wednesday for both Booking Holdings and Airbnb,” each of which handed in strong financials in Q4 and throughout last year.

The “jitters” are on a 2023 outlook where the ranks of high-paid luxury travelers have thinned, with the axe falling hardest in the tech sector, causing ripples into finance and adjacent areas. And with households living paycheck to paycheck trading down and cutting back on nonessentials, they’re unlikely to pick up the slack on pricey vacation travel and dining.

Analysts’ warnings should always be taken with a grain of salt, but major stock indexes are another matter. As CNBC reported in March, “The NYSE Arca Airline index, which includes mostly U.S. carriers, was down about 6% Wednesday afternoon, on track for its biggest one-day percentage decline since last June. It outpaced a drop in the S&P 500.”

PYMNTS research also recorded a dip in consumer sentiment into the first quarter as inflation and rising interest rates took their toll.

According to the New Reality Check: The Paycheck-to-Paycheck Report — The Economic Outlook And Sentiment Edition, a collaboration with LendingClub, “With inflationary pressures dampening their optimism, many consumers are likely to shy away from large purchases in 2023, primarily electronics, appliances and leisure travel. Only 35% of consumers said they will incur leisure travel expenses in 2023, and just 24% plan to purchase expensive electronics or appliances in 2023.”

Issues for airlines — most of which had exceptional years in 2022 — include ongoing high fuel prices and labor shortages. Still, consumer demand is the true wildcard and something no one can accurately predict. But sky-high airfares and lodgings prices may prove unsustainable.

Additional PYMNTS data gathered in March from a sample of over 2,100 U.S. consumers found that people are dialing back travel plans, with almost 43% of respondents saying they’ll choose lower-cost travel providers, close to 42% saying they’ll opt to stay with friends/family over booking hotels or home shares, and just over 40% saying they’ll stay at home more often.