America’s divided summer economy is coming to an airport or hotel near you

The travel industry is in the midst of another hot summer, as Americans hit the road and head to the airport to take advantage of slightly cheaper flights and gas. But the 2024 vacation outlook isn’t all sunshine: Like the rest of the American consumer experience this year, it’s sharply divided.

Many wealthier consumers — traditionally the lifeblood of the travel industry — are feeling good this year, as a strong stock market and rising home prices add to their wealth. Though they’ve felt the brunt of inflation in recent years, they likely have more wiggle room in their budgets and more options to ease the pain by switching from brand-name products to generics, or from Whole Foods to Walmart.

Poorer families have had less room to maneuver to avoid the burden of high prices. While the labor market is strong, with low unemployment and wages that have risen particularly rapidly at the bottom of the income ladder in recent years, signs of economic stress have emerged among lower-income Americans. Credit card delinquencies has come upmany people with a lower income report that you feel less confident in their own household finances, and companies targeting lower income groups report being under pressure.

The gap between higher- and lower-income consumers has been widening for years, but travel is expected to be the most visible this summer. Surveys show wealthier households are more optimistic about their ability to travel, and services they are more likely to use, such as full-service hotels, are flourishing. Budget hotel chains, on the other hand, are expected to report a decline.

“When you go upscale, that’s where you actually see growth,” said Adam Sacks, president of tourism economics at Oxford Economics. “A lot of that has to do with the different financial situations of different income groups.”

Bookings, survey responses and spending trends to date suggest the travel industry is experiencing a moderate but healthy growth this summer and in 2024 as a whole. That growth is expected even after several years of breakneck vacations as people took “revenge” for the trips they missed during the pandemic.

Outgoing international travel is still in bloomDomestic leisure travel is holding up and even business travel is returning after a sharp decline that began in 2020. While spending on airfares may be down somewhat as airfares have fallen, airports are reporting of record traffic on important days. AAA predicts that travel on July 4 will crush last year’s strong performance.

“We see a lot of people on the road; we see people flying,” said Joshua Friedlander, vice president of research at the U.S. Travel Association. “We think that’s a sustainable level of growth.”

But that resilience is not uniform across income groups. Travel spending “picked up and was largely driven by consumers with discretionary income,” the Federal Reserve Bank of Richmond reported in the Fed’s last anecdotal release on national economic experiences. “In contrast, low- to middle-income consumers reportedly pulled back” because of “higher costs that led to tighter household budgets.”

This contributes to an established trend: wealthy people tend to spend much more on extravagances such as travel. top two fifths of the income distribution accounts for about 60 percent of spending in the economy; the bottom two-fifths, about 22 percent. The gap is more extreme when it comes to vacations. People with lower incomes have historically about 19 cents spent on the dollar a high-income person spends on lodging, transportation and other travel-related purchases, based on one analysis.

Recent economic trends could exacerbate that. Lashonda Barber, an airport worker in Charlotte, N.C., is one of those struggling. She’ll spend her summer on airplanes, but she won’t be leaving the airport for vacation.

Ms. Barber, 42, earns $19 an hour, 40 hours a week, as a garbage truck driver who cleans up after international flights. It’s a tough position: The asphalt is scorching in the southern summer sun; the garbage bags are heavy. And while it promises to be a busy summer, Ms. Barber’s job is increasingly failing to pay the bills. Both rents and her property taxes have risen sharply, but she’s making just $1 an hour more than when she started her job five years ago. While that’s not the typical experience — wages for lower-income earners have generally risen faster than inflation since at least late 2022 — it’s a reminder that some people are falling behind the averages.

“I don’t do personal trips,” Ms. Barber said, explaining that it had been several years since she had taken a family vacation and that when she did, she drove.

This is in stark contrast to what is happening at the other end of the income spectrum.

Parker Hess is the room director at the Allison Inn & Spa in Oregon’s Willamette Valley. Rooms start at $645, amenities include plush bathrobes, and the hotel is set in bucolic wine country. Business is good.

“Our rates are the highest they’ve ever been,” Mr. Hess said, and while a customer will occasionally protest, many don’t even ask the price.

Hotel room rates are expected to vary widely this year. Jan Freitag, national director of hospitality analytics at CoStar Group, said he predicts full-service hotels like Marriott and Sheraton will see room rates grow 2.1 percent this year, while mid-range room rates will remain about flat. He expects economy hotel room rates to drop outright as poorer travelers pull out.

“The lower-income consumer seems to be making a choice between things they have to have and things they want to have,” Mr. Freitag said. “You have to pay your credit card bill, you have to pay your car insurance, and those things are expensive now.”

That gap is also evident in surveys. In a Bank of America Institute summer travel survey, a higher percentage of households with annual household incomes below $75,000, about the national median, said they had no plans to travel this year compared with previous years.

“This may indicate that these consumers are becoming extra cautious when it comes to making the financial commitments needed to go on vacation,” analysts wrote in their report.

That said, the analysts noted that the pullback hasn’t yet been reflected in actual credit and debit card data, which so far have shown lower-income consumers continuing to spend. That’s an important caveat: Just because people report financial strain in surveys doesn’t necessarily mean they’ll cut back.

And from an industry perspective, even if the research is predictive and poorer households do indeed take fewer vacations this year, demand from wealthier people alone could be enough to drive a strong — if unenthusiastic — performance for the summer travel season.

That strong demand could help boost the overall economy. Domestic travel contributes to U.S. economic growth. International travel does not, but it does indicate consumer confidence.

Erica Reasoner, 42, was on a Sunday afternoon flight from Charles de Gaulle Airport outside Paris to Washington DC on her way back from two weeks in Italy and France with her husband and two children.

She and her family stayed with friends and relatives for about half of their trip, and Ms. Reasoner said they had not traveled internationally last year. She lives in Denver and said her job building custom homes has been steady and business has been good, and that while she has noticed higher prices for groceries, recent inflation has not caused problems for her family’s budget.

“We planned this trip for so long that the economic situation didn’t really play a role in our decision,” she said. Not everyone, she said, was so lucky.