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Tuesday, September 26, 2023

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How long will the tourism boom last?

Rweekend holiday It’s in full swing, and tourism is cashing in. After a tumultuous few years, the urge to splurge on air tickets and hotels will pay off handsomely. Travel agencies are inundated with bookings; hotel chains are seeing record profits. EasyJet has raised its profit forecast twice this year; International Airlines Group Both Ryanair and Ryanair returned to profitability for the first time since the pandemic began, with Singapore Airlines handing out part of its record profit as a bonus equivalent to eight months’ wages. Airline bosses around the world now expect net revenue of $9.8 billion this year, more than double their initial forecast, as airfares rise faster than inflation, according to industry body IATA.

The holiday rush has boosted the outlook for international travel. Global tourist arrivals are expected to reach 95% of pre-pandemic levels this year, up from 63% in 2022, according to estimates United Nationsof the World Tourism Organization. Shares of travel companies, which slumped in early 2022 on fears of rising inflation and a looming recession, are now surging again (see chart). The high price tag hasn’t deterred sunseekers so far. “People are prioritizing travel above other discretionary spending,” said David Goodger of consultancy Oxford Economics. Many people still had a lot of cash piled on during the lockdown, and they splashed out over the holidays, even as they cut back on clothes or eating out.

Several factors will determine how long the good times last.Some are on the supply side of the industry: airport staff shortages, skyrocketing jet fuel costs and faltering it The system collapsed under the weight of demand last year, causing flight delays or temporary cancellations of up to hours. Last summer, a quarter of U.S. flights were canceled or delayed. This breakdown erodes trust. They are also expensive. Southwest Airlines estimated that the cancellation of nearly 17,000 flights in December cost it about $800 million.

A bigger problem concerns demand. After a stellar summer, interest in the holidays can drop as quickly as it rises. While the U.S. Federal Reserve has paused in rate hikes, it is expected to raise rates again in the coming months. As the Federal Reserve and other central banks in rich countries continue to battle stubborn inflation, holidaymakers may finally give up.

Chinese tourists, the third-largest group of tourists in 2019 after Americans and Germans, according to Oxford Economics, may not be able to make up the slack. Nearby destinations such as Macau and Thailand have proved popular since China eased coronavirus restrictions last year. However, Chinese enthusiasm for remote areas remains tepid. Hotel giant Accor estimates that about three-quarters of Chinese tourists will take a “staycation” this year.

The furloughs would be bad news for an indebted industry already facing mounting expenses and recovering from past losses. Airlines alone lost $138 billion in 2020. Credit rating agency Moody’s expects labor costs for airlines to increase by nearly a fifth this year. Short-staffed hotels are still struggling to fill vacancies despite higher wages. In the UK, payrolls are 15% higher than before the pandemic. After a years-long holiday season, the travel industry may face everyday economic realities.

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