Wave of summer travel expected over July Fourth holiday as inflation eases

Travel activity is expected to heat up to record levels around the Independence Day holiday as consumers take advantage of cooler prices for airfares, gasoline and hotels.

AAA expects a record number of people to hit roads and airports during the week between Saturday June 29 through Sunday, July 7. The motor club forecasts that roughly 70.9 million people are planning to travel, the most since before the pandemic.

The hot travel forecast comes amid broader worries that consumers are becoming more cautious on spending outside of necessities, which is a key factor to a cooling economy. Inflation has eased significantly from its peak in 2022, notably on costs for travel and vacations.

“With summer vacations in full swing and the flexibility of remote work, more Americans are taking extended trips around Independence Day,” said Paula Twidale, Senior Vice President of AAA Travel.

The forecast this Independence Day holiday, along with encouraging financial updates from cruise lines, bodes well for a sector that would typically suffer if consumers start cutting back on discretionary items and services.

Airports are seeing record numbers of travelers this summer. The Transportation Security Administration screened nearly 3 million people at U.S. airports June 23, an all-time high. The agency expects the number of air travelers to surpass 3 million at some point over the July 4 holiday week.

Consumers continue to face pressure from inflation on a wide range of goods, but travel-related items including airline tickets and hotel costs have eased significantly from a year ago. Hotel room prices were 1.2% lower in May compared with a year ago, according to recent government inflation data. Those costs have been trending lower since the beginning of the year.

Gasoline prices, which can have an outsized impact on consumer budgets, have also eased from a year ago. Regular gasoline prices averaged $3.43 per gallon last week, down 13 cents from a year ago, according to the U.S. Energy Information Administration.

Delta Air Lines, American Airlines, Marriott, and Hilton will likely be the biggest beneficiaries of consumer demand for travel this summer, according to Morgan Stanley. Still, the “rising tide of demand should continue to lift all boats,” the report said.

Cruise lines are also poised to benefit. Carnival recently raised its profit forecast for the year and said bookings for 2024 are the best on record in terms of both price and occupancy. It said total customer deposits reached an all-time high of $8.3 billion during its fiscal second quarter and it expects capacity to grow 4.8% in 2024. Competitor Royal Caribbean has also raised its forecasts for the year.