Want cheaper vacations? Get government out of the way
‘Tis the season for summer vacations, but soaring prices are leading to sticker shock and weeping and gnashing of teeth.
“A provider of travel data, Hopper, predicts that average domestic airfares will peak [in June] at $328 for a round-trip ticket, which is down from last summer’s record of $400 but 4% higher than in 2019,” reported 11 Alive News.
Matters are much more concerning if you’re one of the many Americans looking to vacation abroad this year. “International fares are their highest in more than five years, with prices to Europe up 50% from a year ago,” the news organization continued. I can attest. I was invited to attend a summer conference in London, and the price of a roundtrip ticket from Atlanta to London with Delta was nearly $1,700! When you factor in lodging, which costs much more than last year in many places, meals, incidentals, and activities, summer vacations can cost a small fortune.
Despite this, Americans are planning to vacation in increasing numbers. Nearly half of the country plans to travel more than they did in 2022, which was a gangbuster year for travel. Experts have called this insatiable desire to vacation following the COVID-19 lockdowns “revenge travel,” but revenge doesn’t pay for this luxury. A 2017 survey found that around 75 percent of Americans have gone into debt in order to take a vacation.
Faced with across the board inflation today and an even greater itch to explore, something tells me that many more are charging their 2023 vacations to their credit cards. As someone who travels regularly for work and leisure, this phenomenon is both fascinating and disheartening. So what’s driving these costs skyward and can anything be done to get them under control?
Aside from inflation that’s been wreaking havoc across all sectors, flight costs in particular boil down to some simple market forces and government regulation. The airline industry has been grappling with workforce shortages and dating back to 2021 has dealt with supply chain issues, although both problems are easing to some extent. Nevertheless, combined, these have limited supply in a time when demand for flights is incredibly high. Low supply, high demand, and an industry likely trying to recoup pandemic losses results in surging prices, but that’s not all.
Anyone who travels within places such as Europe knows that their flights are much cheaper than flights from American airports. As I type this, a July roundtrip flight from London to Rome will cost you around $53, Athens to Santorini $45, and Naples to Prague $63. The truth is that year-round it is generally pretty simple to find such flights under $75 and sometimes as low as $20. Compare that to an average price of over $300 for domestic travel in the United States, and much more for international flights.
European airlines are facing many of the same constraints as American airlines, including workforce shortages, supply chain issues and increased demand. Yet, Europe takes a more free-market approach to regulating the airline industry.
“The largest single reason for lower airfares in Europe is the presence of competition,” according to Chris Loh of Simple Flying. “The open skies agreements established in the European Union mean that European airlines can fly between EU countries freely.” Unlike the United States, Europe encourages international competition to the benefit of passengers. The added airlines mean consumers have more choices tailored to their desires and companies vying for their business.
That’s not the whole story though. Europe also enjoys a couple other advantages, including a vast train network that competes with airlines and large, centralized population pockets—making it easier for airlines to fly more cheaply.
Similar to the airline industry, hotel costs are largely driven by increased demand and low supply. Workforce shortages and rising energy costs have plagued the industry, and “There are fewer hotel rooms under construction than there were before the pandemic thanks to lockdowns, supply chain snags and rising interest rates,” writes Money.com.
The problem of high interest rates likely impacts airlines as well as the hotel industry. In an effort to curb skyrocketing inflation, the Federal Reserve has repeatedly raised rates. This has made it far more expensive for companies to borrow money to fund various business needs—costs that are passed on to consumers.
Understanding this will not help Americans get a cheaper vacation this year. If policymakers would get inflation under control, embrace freer markets for airlines, and be smarter with the federal reserve rate, then we could see flights and hotels become more affordable for Americans. Only then will we begin to disassociate revenge travel with weeping and gnashing of teeth.