Consumers more than willing ‘to bite the bullet’ on elevated travel costs: Economist

Hopper Lead Economist Hayley Berg sits down with Yahoo Finance Live to discuss holiday travel demand, airfares and other costs, and tips for Travel Deal Tuesday.

Video Transcript

- Heading into the prime shopping season, consumer spending remains strong. Now, just this month, shoppers have spent around $64.5 billion online. That's according to Adobe. That's essentially flat compared to last year, but a sign that challenging economic conditions have not stopped people from online shopping. Now, some of the best selling items this month in toys and gaming include Hot Wheels, Paw Patrol, and the Nintendo Switch. Adobe's data does show, despite strong spending levels, the way consumers are spending is changing, and it could be a warning sign for the economy. Using buy now, pay later options are up 13% since last year.

Our airports are getting a full serving of holiday travel ahead of Thanksgiving. Approximately 2.3 million travelers passing through security on Tuesday, soaring higher than the 1.97 million on the comparable day in 2019, pre-pandemic. AAA also forecasting 55 million people will travel 50 miles or more from home for Thanksgiving, which would mark 98% of pre-pandemic volumes.

Joining us now for more on the holiday travel, Hayley Berg, Hopper Lead Economist. Nice to see you, Hayley. What's the biggest shift, what's the biggest change in travel this holiday season from last year?

HAYLEY BERG: Well, we're certainly seeing many more people flying this year than last year. With a significant amount of airline capacity recovered, we're expecting to see about 6% more seats available to book throughout this week, as were available in 2019. Significantly more than last year.

- And as we look at spending, especially when it comes to airline travel, what are-- what are people prioritizing, and how much are they willing to spend right now?

HAYLEY BERG: We ask consumers that exact question at Hopper, and about 2/3 say that price is their biggest concern right now, whether it comes to holiday trips or thinking about travel next year. But they are willing to pay. You know, airfare for Thanksgiving, for example, last-minute tickets up 30%, or more than $100 per ticket, for domestic flights, yet we're expecting significantly more capacity than last year and very full flights. So consumers seem to be willing to bite this bullet of higher airfare because they are still willing to get out there, visit family, go home for the holidays, or take some trips.

- It's incredible, Hayley, defying all logic. Every plane, every airport seems full. Prices for Christmas travel, how do they compare from a year ago?

HAYLEY BERG: Prices for Christmas, much higher than what we've seen last year and in 2019. They will rise more. So right now, we're just seeing a few percentage points above previous years, but as with Thanksgiving, we'll see prices skyrocket the closer we get. Something coming out of the pandemic is a change in how people book travel. They're booking much more last-minute. Many travelers probably have not booked their Christmas flights, so that means when we see a huge surge in demand right before the holiday, prices will increase rapidly.

- And, Hayley, obviously, things started with the deals with Black Friday. Then came Cyber Monday, and now there is Travel Deal Tuesday. What is that? How does that work, and how good are the deals, actually?

HAYLEY BERG: Travel Deal Tuesday is the best day in that post-Thanksgiving shopping period to book travel. Hopper has more than 10 years of historical data. In analyzing all of that data few years ago, we realized we see the deepest discounts and the widest range of discounts on travel the Tuesday after Thanksgiving, and what we've seen in previous years, and this year as well, is that a lot of online travel agencies like Hopper will sweeten the deal. Prices will drop on many airlines, hotels. We will throw in additional promotions, offering things like $100 off trips to Rome, Bali, or Santorini, which means it's the absolute best day between now and next year to start booking travel, taking advantage of those really good prices, especially as consumers are more worried about, can I afford that trip to Disney next year?

- An interesting travel trend, Hayley, related to remote work. It seems that travel around holidays is spreading out. So rather than that steep spike up and steep spike down, more of a plateaued effect. How is that impacting prices?

HAYLEY BERG: Typically, we see huge savings if you can fly on the less popular days leading up to a holiday. For example, returning the Monday after Thanksgiving, you can save at times about $300 on domestic airfare. This year, we still see peaks and troughs in when people are flying and how much they're paying, but for Christmas, a holiday where there is a significant amount of time off work and school, and many people have remote work flexibility, we see more of a spreading of demand. There are still peak days that are more expensive, but almost as many travelers will be flying in the days early week before Christmas Eve, as Thursday and Friday before that holiday weekend starts.

- And we know that Frontier came out with this package deal where you could for $599 fly as much as you wanted to domestically. Do you expect, though, some more of these airlines to start coming up with these sort of package deals or companion deals to keep the demand going? Because, obviously, people just can't keep spending at this pace forever.

HAYLEY BERG: We are seeing really strong demand into 2023 already, so I hope that we continue to see creative bundling and unbundling from the airlines. You know, low-cost carriers, like Frontier, offering extremely low, unbundled fares is part of the reason we have such low prices, or had, before the pandemic. So I hope to see more creative ways of making travel accessible, because what we do know, we're seeing it in the data, and we're hearing it from our customers, is it is important to Americans to travel next year, even if prices are high.