Warning signs from the travel space are flashing a recession is coming, here are those points and a reason it may not be entirely bad.
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American, Delta, And United All Revise Down
American Airlines indicated on a recent earnings call that it would revise its first quarter to be even worse than expected. Already projecting a loss, the airline has doubled to tripled its first quarter losses.
“American Airlines on Tuesday forecast a bigger first-quarter loss, amid concerns that tariff pressures and government spending uncertainties could dampen travel demand.
The airline now expects adjusted loss per share in the range of about 60 cents to 80 cents, compared with its previous forecast for a loss of about 20 cents to 40 cents.” – Reuters
“The revised outlook called for sales growth of 3%-4% (vs previous expectations of 7%-9%) and an operating margin of 4%-5% (vs. previous expectations of 6%-8%). Similarly, EPS was revised to $0.3-$0.5 (vs earlier expectations of $0.7 – $1.0).” – Yahoo! Finance
“We have also seen weakness in the demand market,” Kirby said. Government travel is about 2% of United’s business, but other workers’ travel is also affected, like consultants and contractors, which account for another 2% to 3%.” – CNBC
Americans Planning Vacations Down 20% From 2024
Fortune cited a report from The Conference Board that showed a sharp drop in Americans planning to take a vacation in the next six months.
“In February, the number of Americans planning a vacation in the next six months was the lowest in 15 years, excluding the pandemic when travel was pretty much obsolete, according to a survey conducted by the Conference Board. Apollo chief economist Torsten Slok points to uncertainty as the underlying rationale.” – Fortune
Last year at the same time, 49.7% of Americans planned to take a vacation in the next six months, but that’s down to 39.7%. The last time it was this low corresponded to the latter months of the credit crunch, or the 2008 housing crisis – about 20% lower than last year.
It’s important to note that while this is not business or government travel, those that work in the government or businesses that serve the government may not feel confident about their jobs and thus are not planning to take a vacation until the future becomes clearer. It’s unknown how much (if any) of this is related to such sentiment and how much of this is simply a souring outlook generally.
Benefits Of A Recession
While no one wants to talk about a recession, I stated here on Live And Lets Fly more than a year ago that the economy was defying all logic and business sense. It could be that compounding inflation, though it’s nearly stopped entirely at this point (core inflation was up just 0.2% from the prior month), that has finally caught up to the economy. It could be the concern of the future economy, the affect tariffs, trade restrictions, and travel bans could be causing concern. It could be something else entirely.
A recession, especially for an economy that has experienced high inflation, is not a pleasant experience but not necessarily a bad one for the long run. Discretionary purchases like travel have the opportunity to quickly have a deflationary effect at scale. For example, if flight demand drops precipitously and airlines respond by dropping fares, those drops will be dramatic and material. US airlines accounted for nearly a quarter of a trillion dollars of GDP in 2024 and just dropping to 2019 pricing levels would drop the CPI. That will have a knock down effect throughout the travel industry from hotels to cruises to theme parks further advancing deflationary pricing. Lower energy costs will ease businesses into reducing costs and chasing customers which in turn help their suppliers absorb the new structures.
For travelers, a better experience for less money is awaiting them as well. With more seats open, the dramatic increases in redemption costs and the lower availability has pinched even those with points but with fewer travelers, this will create opportunities for those with points and dollars to spend.
Conclusion
No one ever wants to root for a recession, but many economists (and this writer) believe it’s already here. The question is how the travel industry will respond. It’s one of the key canaries in the coal mine of the economy. Airlines are strapped with record labor contracts and all-time high fleet levels that will cause some pain. But if labor and management can work together, and energy costs remain low, there’s a chance that this is a good opportunity for the economy to reset pricing levels, reverse some of the inflation damage caused, and prepare for a more stable and dependable growth trajectory in the future.
What do you think?
News flash we’ve been in a recession for about 2 years now and the U6 unemployment numbers not the U3 that the press likes to focus on have shown that. Just look back to see when that 2 consecutive quarters of negative happened that the press tried to bury. My business has been down 2 years in a row. Your article cut off so I couldn’t finish it but I’m assuming it reads that it will beneficial for those that have a ton of miles that can finally be used to redeem for premium international flights. Which will be great because I have wondered why all these people have so many miles to burn on international premium class travel that the airlines are putting in premium heavy configurations.
Yep . Business layoffs have been published for over a year now . A coming recession has been in the cards for at least that long .
U6 is rising but it’s still low compared to the average for the last 30 years. It was also historically low about 2-2.5 years ago. Logically, it only ever was going to rise from there
Solid conclusion
Trumpcession!
Sure is! I just read another article about Canadians canceling travel to the US because of Trump’s rhetoric. Not helping the travel business in any way, and certainly not doing any good with our relations with some of our best friends.
I was just about to say the same. Myrtle beach just had the Can- Am festival. Many Canadians cancelled (30%) a small vignette, but a look into the crystal ball of what might be seen. We can’t afford this nonsense.
Out economic data is from when Biden was president. Trumps only been in office Les than two months. It doesn’t work that fast.
This is a Biden bust.
In just two months, the orange criminal has already managed to wreak havoc on the global economy with his taxes and his attacks on previously friendly countries.
That’s the Maga spirit Walter! Blame democrats for the failures of this administration. Open your eyes. The whole world is watching
“U6” & “U3”: to what are you referring?
Also: when was the “two consecutive quarters of negative growth” to which you point?
Seems like all reputable measures of recession (e.g., “two quarters consecutive & negative”) show an economy moving well into LT, post-COVID, recovery. (Though 2+ trillion of “infrastructure” & ‘bloat’ will do that.)
Anybody with a modicum of intelligence knows exactly the outcome of Trumps inflationary tariffs and the mass firing, with no good cause, of federal workers. He flushed a great economy down the toilet .. and we have nobody to blame but him and his sycophantic voters.
The brainwashed MAGA are too far gone.
I am so sick and tired of the blatant lies being spread by the right wing.
Thank you for ruining this country.
Our travel plans evolved quickly once the government changed and new policies became very real. Why should others support this nonsense?
Yes, the individual consumers are nimble.
I think post covid “revenge travel” lasted 1.5-2 years longer than it should have. Count me in as one of those scaling back travel plans in the next year or two, but for other reasons: Getting off the status wheel because of ever-increasing status requirements and at the same time devaluations of status across the board. And maybe it’s not affecting me (yet) but my company has been continuing to “right-size” for the past 2.5 years, which means colleagues losing jobs (even the good ones). So I do think recession has been happening for a while now.
And screw your autoplay video ads. (Not to you specifically, Kyle). I will never book a Vrbo just for that stupid-ass MySpace style autoplay ad. It fvcking autoplays every 10 seconds even if I pause it.
Agree there was a fad aspect to big leisure travel from 2021-2024. Instagram social pressure / attraction plus more flexibility to be away from the office and lots of points liquidity on top of money liquidity. Still a long term trend, but probably spiked above trend those years.
If looking at turism to America, it will also have an impact on the airlines as most Europeans and Canadians will not travel to the US. The turism industry as a whole is looking at a vertical drop.
Plenty of people have been talking about recession chances being imminent since the beginning of the recovery from the 2008 crisis. Some periods louder or quieter than others.
Data is softer but for example in Delta’s case it was a revision to lower growth vs an outright swing to yoy declines in sales.
Higher probability of a recession than a few months ago, and certainly not an outcome to dismiss, but not a given.
IIRC, the big box home improvement stores (Home Depot, Lowe’s, etc) are also raising a red flag. Especially on major renovations like kitchens and bathrooms.
We Americans are getting what we voted for …. ENJOY !
Good we are happy with what we got.
Better than what we had before. I’m loving it.
For wht it’s worth, I’ve had a domestic United flight fall in price by more than 25% after ticketing within the past week. I also feel like I’m seeing a very small uptick in trans-Atlantic award space availablity in May.
If travel is slowing it is not necessarily a sign of an imminent recession. It is likely more indicative of price fatigue. US and Canada airfares and hotel costs have gone thru the roof. There is no longer a desire to spend outrageous amounts on travel. A slowdown, accompanied perhaps by lower prices, would be very welcome.
@Kyle,
In your narrative, you do not distinguish between domestic and international. Are the airlines predicting a dip in both revenue sources or just domestic?? Need a bit of clarity here.
Just flew 10 international flights to Europe and Asia last month. I’ve noticed that on many flight, J was completely full, while Y and W were not very full at all. This was especially true when flying LH back to the US where I heard passengers talk about how they had 2-3 rows to themselves, meanwhile, in J, there were no open seats. Obviously these are just my anecdotes, but it’s interesting to compare them with the data points
Our travel plans for 2025 have dropped bout 80% from 2023-2024. Credit this primarily to travel fatigue versus any factor relating to Presidential politics.
The legacy of Biden.
The Biden bust
With Biden, we were happy and didn’t know…
Now, with Putin´s lapdog, only chaos and uncertainty.
Yes, everyone saw the pivot in the lie. For all of 2024 Trump and all his sycophants said that he would fix all our economic challenges on day one, and as soon as he took office the story changed. Now every problem is Bidens responsibility and we are all told that it will take years of pain before it gets better. Both are lies. Trump was never going to fix anything on day one and Trump is not without substantial fault in everything we are dealing with right now.
The way the cultists tell the story, all the problems have been there the whole time, but the CEO’s and economists are just now revealing the data. Airline revenue has been falling for well over a year now, but the CEO’s hid that from shareholders just to embarrass Trump and protect Biden. They all risked securities fraud in order to protect Biden and harm Orange Jesus.
I believe that you believe that.
And we both know that it is untrue.
This is a product of many converging moments. First, it’s not a secret that the boom boom years of travel were going to settle at some point. That is happening to no fault of anyone other than a reckoning of the revenge years.
However, this is going to be made much worse by the combined forces of less people wanting to travel to the U.S. (The NYT’s reported yesterday that the amount of foreign travel bookings from Europe and Canada are dropping significantly, seemingly overnight), the gutting of government travel, and the lack of robust business traveler that were always in the past a saving grace during leisure downturns. The first two factors were absolutely avoidable had Trump not launched a full on attack of our Government and our allies. The last one was a combined shift in business travel and airlines gutting of loyalty.
Given all this, there is no doubt that there would have been a landing regardless this year in the travel industry. Trump though chose to make it a hard one instead of a soft one.
Relative to expectations *today* – I will take the over on travel demand (not necessarily pricing – but demand). While people are worried about the economy, there is still a higher propensity to spend on leisure travel than pre-pandemic levels. Business travel (ex government and related work) will still be up slightly year-over-year. Things will be softer, but don’t expect empty lounges, planes, and huge discounts.