Inflation May Cause Headache for Tourism Industry

Inflation might not be on the minds of every American, but that doesn’t mean it doesn’t affect the bottom line of every business and consumer when prices start to rise.

As wholesale inflation smashed through 11% for March 2022, the tourism industry is bracing for a shift in where their tourist dollars are coming from.

From the sandy beaches of the Gulf Coast in Alabama and Florida to amusement parks like Six Flags and even state and national parks, higher gas prices are likely to affect how many people travel considerable distances to visit their favorite tourist stop.

According to The Seattle Times, 59% of Americans plan to stick to domestic locations for vacations in 2022. Thirty-two percent, however, are planning ‘bucket list’ trips that they likely weren’t able to take during the worst of COVID-19.

Driving Isn’t the Only Concern

Even more than driving, airfare and airlines are seeing a massive change in flights offered by companies like United and American Airlines. As gas prices continue to run high, jet fuel and airline gasoline have become necessary costs that airlines aren’t looking to pay, especially without pushing that cost onto customers.

According to Josh Pelletier, Chief Marketing Officer at Barbend, “Prices had already begun to rise, with airfares anticipated to increase by 7% this month.” He added, “While rising energy prices pressure airlines to increase fares, demand is also dropping in some countries.”

And anyone who flies regularly knows once airfare goes up, it rarely comes back down, even when inflation balances back out and costs start to even out again. New charges like extra baggage, overweight baggage, and even carry-on luggage can incur a hefty fee.

The overall price jump in airfare since January 2022 stands at 40%. Hopper, a travel comparison company, reports that a domestic flight will cost you upwards of $330 for a ticket over the $235 they ran at the beginning of 2022.

This rise in prices is likely to continue, given the current state of interest rates and other mitigating factors that affect inflation.

The Fed Weighs Raising Interest Rates

The Federal Reserve, which is the Central Bank in America, has been left with little choice in policy except to raise interest rates to try and counterbalance the rise in inflation.

The initial rate hike came in March, with three more planned in June, September, and December to try and tackle inflation before it turns toward hyperinflation.

Dow Jones reports (via The New York Post) that the Fed revised its outlook just before the Bureau of Labor Statistics planned to release its annual consumer price index, a key indicator of inflation.

So far, the Bureau of Labor Statistics all prices index is up 7.9% as of the end of February, making it the largest increase year-over-year since January 1982, certainly not a good indicator for the Biden Administration.

War Leaves Its Own Mark

As Jessica James, a travel blogger at Past Lane Travels, points out, rising gas prices aren’t the only problem causing issues in the tourism industry. There are a lot of factors that go into why gas prices are rising.

• Sanctions Against Russia – When Russia invaded Ukraine in late February 2022, the US was quick to slap the invading country and its leader, Vladimir Putin, with sanctions. They have since gone on to sanction Putin’s daughters and many highanking Russian officials as well.
• Imported Oil – While the US has its oil reserves, most oil and oil byproducts in America that we pump into our cars, trucks, airplanes, and the like, come from other countries like Ukraine and Russia.
• Gold – Russian President Vladimir Putin recently tied the Rubel, Russia’s main currency, to physical gold. That measure could cause the US Dollar to lose value quickly, meaning an even worse situation as inflation rises.
• The Fed – With the Fed expected to increase interest rates four times in 2022, companies are reeling to adjust to new metrics.
• Supply Chain Issues – Just like in other areas of the economy, oil and gas supply chain disruptions have wreaked havoc on everything from the processing of crude oil to its transportation and products (like gasoline) that come from crude oil.

Six Months to Bounce Back

With summer on the way and the weather getting warmer in the south, Americans are itching to hit all their favorite tourist sites, but that doesn’t mean plans will go through. As the Biden Administration struggles to grasp the inevitable, gas and food prices will continue to rise with inflation.

Whether or not it’ll be enough to keep tourist stops like the Gulf Coast, Cancun, Mexico, and the Caribbean thriving remain to be seen as June, July, and August roll closer. And if inflation continues to rise past the six months President Biden planned to tap America’s oil reserve, he’ll have to use other tactics to keep costs from rising further to stop hyperinflation from setting in.

Originally published at Wealth of Geeks

By Trey Thoelcke