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Americans' desire to splurge on expensive vacations is fading.
Leisure spending has rebounded strongly over the past two years after the pandemic put the brakes on the travel industry. The pandemic is threatening to use up all of the pent-up demand. If “revenge travel” was the buzzword of 2023, “normalizing demand” will be the company's catchphrase of the year. Investors should adjust their expectations accordingly.
Hotel operator Marriott International is among a series of leisure companies that say travel demand is normalizing, especially in the U.S. and Canada. Room revenues for leisure travelers in the region, or revenue per available room (RevPAR), were flat in the first quarter compared to the same period last year. Meanwhile, U.S. online travel site Expedia cited weaker-than-expected growth in total bookings as the reason for lowering its full-year guidance. Southwest Airlines reported revenue per available seat mile (RASM) in the first quarter at the low end of the airline's own forecast amid soft demand from leisure travelers. Even Airbnb is seeing a slowdown. The company said customers booked 132.6 million stays and experiences in the first quarter, up 9.5% from the same period last year but the slowest growth rate since the pandemic.
According to real estate data group CoStar, RevPAR across the U.S. hotel industry fell 2.2% in March, the first year-over-year decline since the pandemic. The decline in pricing power isn't surprising: U.S. hotel occupancy has declined year-over-year for 12 consecutive months and was down 2.5% year-over-year in March.
There is a silver lining: While growth in the U.S. has stagnated, demand in Europe and Asia has been more sustainable, making travel companies with a stronger international presence a safer bet. Expedia, for example, derives almost two-thirds of its revenue from the U.S.; rival Booking puts the figure closer to 10%. Booking said strong bookings and revenue growth in the most recent quarter was due to strong travel demand to Europe and Asia.
Corporate travel, which has recovered slower from the pandemic than the leisure sector, is also offering some relief: The number of domestic trips taken by business travelers is expected to grow 7% this year, compared with a 1.9% increase for leisure travelers, according to the U.S. Travel Association.
Business travelers tend to pay more for airfares and hotels, which is good news for companies that count this group as a client, such as Delta Air Lines and Hilton Worldwide. Over the past 12 months, Delta, Hilton and Booking have outperformed the other companies in the group, and this gap is expected to continue.
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