Are We Heading for a Travel Recession?

As the eternal optimist, I have been trying very hard to ignore some of the recent warning signs we have seen in MMGY Global's research, as well as in the economic news and revenue forecasts that pervade around the world.

One could choose to be optimistic. After all, we have had 100‐plus-straight months of travel expansion in the United States, and there are now parts of the world that are just starting to join the travel revolution, including emerging economies with hundreds of millions of travelers now spending in destinations that have long hoped for the benefits.

But despite these positive factors, I see increasing and worrying signs about where worldwide demand is headed and evidence that suggests the U.S. is poised for a slowdown across every travel category. Among the concerns:

• The MMGY Global Traveler Sentiment Index (TSI)

The TSI represents eight straight quarters of secular decline in our demand index, suggesting that American intent for leisure travel has softened considerably. And this tends to be a harbinger for further demand declines going forward, especially when you dig deeper into our data to see that price sensitivity has jumped significantly over this same period, with 34 percent of travelers now citing travel costs as the number-one concern -- versus only 18 percent in 2016 -- another bad sign.

• Prices are still rising in many cases.

In the short term, we see strength in both the U.S. group and corporate-transient markets, but suspect that those sectors will also begin to decline over the next three quarters. And because commercial demand drop‐off is trailing leisure, higher air fares and hotel rates remain in place, creating a further headwind for leisure demand. 

So, while this could provide some near‐term aggregate travel spending increases, RevPAR improvements and airline profits (the latter because airline inventories are at historic lows), by 2020 we expect corporate demand to reverse, followed by pricing and demand erosion across the board. And if international demand in American gateway cities continues to soften, this would not be good for rates in places such as New York City and San Francisco.

Read more on this story from our sister publication, Phocuswright.

Clayton Reid is CEO of MMGY Global, an integrated marketing and tech company for the hospitality and travel industries.