Has inflation actually impacted travel demand?

Has inflation actually impacted travel demand?

Inflation —  it’s the dreaded word that’s been on everyone’s mind the past few months. 

Prices have risen substantially across all aspects of life and the travel industry is definitely no stranger to this. 

The Australian Bureau of Statistics revealed that the cost of transport rose 13.1 per cent, 7 points higher than the average across all categories.

Data from the Bureau of Infrastructure and Transport Research Economics showed its domestic economy airfare index jumped up 3.3 per cent in August from July and the Reserve Bank of Australia has risen interest rates several times in the past few months to try and keep the inflation rate at 2-3 per cent.  

The reserve bank has forecast that inflation will hover at 7.75 per cent through out 2022, drop to an average of 4 per cent over 2023 and then down to 3 per cent over 2024.

This, coupled with workplace shortages, increased demand, the rising costs of fuel due to the Ukraine-Russia conflict and flight cuts across most major airlines, has seen both domestic and international travel become more expensive.

In fact, The Guardian reported that the cost of international travel increased 19.9 per cent in the June quarter alone.

But, has the demand for travel actually been hindered by inflation?

According to Greg McCallum, the sales and marketing director at Entire Travel Group, the answer is basically no. McCallum told Travel Weekly that pent-up demand and making up for lost time have greatly outweighed rising travel costs.

“So this insatiable demand to travel and make up for lost time have offset the concern around the financial side of things,” McCallum said. Entire’s main clientele is made up of retirees or older part-time workers with large amounts of savings whose main concern about travel is whether they’re fit and healthy to go, with money playing a smaller factor.

It’s not enough that travellers are getting back out there despite the rising prices, they are also splurging more so than they used to be.

“People who were booking three or four star are now going five and people who usually go economy are now going business,” McCallum said.

Ivona Siniarska, a travel expert from 1000 Mile Travel Group (1000MTG), noticed very similar patterns of spending across both leisure and business travel.

“I am seeing many travellers who used to be more price conscious specifically asking for business and premium products to take them overseas,” Siniarska said.

“Those who are travelling for longer periods, whereby they may be adhering to a budget throughout their journeys, are requesting lavish bookings and stays so that they arrive in style and finish off at a beautiful property. They’re also looking for pre-booking spa treatments and Michelin star dining experiences where possible.”

Half of Siniarska’s clients are corporate travellers who have followed the travel splurging trend.

“Initially when the lockdowns started, many of the corporate accounts held a policy of no travel until well after the pandemic ends – back when we all thought this would last 6 weeks,” Siniarska said.

“Now that the world has reopened I find that corporate travellers are very keen to catch up with their global colleagues, clients, and customers.

“We are also seeing people embrace more of the bleisure side of travel. Many Australians have piled up their annual leave in the last two years so are using work trips as opportunities to explore parts unknown or revisit favourite global spots after finishing the business portion of their trip.”

Christian Hunter, the managing director of Travellers Choice, also noted that travellers are booking longer holidays and ticking off multiple destinations that they may have done across multiple trips pre-COVID.

Although, he is weary of how sustainable this is and cautioned agents and wholesalers not to become reliant on this type of travel buying.

“But there will come a point when the consumer actually does start to get a bit more cost-conscious, maybe once they’ve had their first trip or two,” Hunter said.

Despite the concern over inflation’s impact on travel coming back, the industry doesn’t seem heavily impacted by it. In fact, TravelManagers even announced at its conference last week that last month was its best August on record and its 8th best month ever.

This trend is a strong step forward amid an ongoing struggle for the industry and will hopefully speed up travel’s return to its pre-COVID state.

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