If you’re wondering what a difference a year can make, look no further than the travel industry. The summer of 2020 was marked by quarantines, stay-at-home warrants and other restrictions linked to the COVID-19 pandemic, effectively putting a hiatus on travel plans. Now vaccines are readily available and public confidence in travel has increased. This summer, as ongoing vaccination efforts continue to improve health and safety, people are once again planning to travel and vacation with friends and family.
But what does an increase in summer travel mean for the economy? We spoke with Jenny Hawkins, assistant professor of economics at the Weatherhead School of Management, to look at summer travel from an economics perspective.
If you’re planning on traveling this summer (or anytime in the future), find out what Hawkins has to say. Economics courses are a plus!
1. There have been unexpected changes in supply and demand.
When the pandemic struck, some industries, particularly the hospitality industry, had no choice but to make drastic decisions. For example, car rental companies have sold up to a third of their fleet as a means of survival, thus reducing the supply. Once the restrictions were lifted, the demand for rental cars increased. Demand is likely to remain high, and since it will take time for these car rental companies to replenish their inventory, this decrease in supply and increase in demand means higher prices.
A recent review on Kayak for car rental in Cleveland for the weekend shows a total price of $ 239 for 48 hours, far higher than the $ 30 per day rental we were used to before the pandemic. These unexpected changes in supply and demand will make the car rental industry and other travel-related industries look a bit chaotic and messy, but ultimately allow struggling businesses to recoup the losses of 2020 and recover the jobs lost during the pandemic.
2. Consumers are willing to pay more.
The price elasticity of demand is the sensitivity of consumers to changes in the price of a good or service. After spending most of 2020 indoors and primarily at home, many consumers have become relatively less sensitive to price changes for travel-related goods and services.
This means that if the price of a product or service goes up, we are more willing to pay that price than we could have been before the pandemic. Before, we might have been more willing to take a shorter trip or eat at home when we saw the prices of gasoline or restaurants go up. This summer, with “makeup trips” much more prevalent, many consumers are willing to pay higher prices for restaurants and gasoline because they are eager to leave their homes and make up for the year. last.
3. Priorities have changed.
The pandemic has offered a reality check over our priorities in life. Because many have not been able to visit family and friends safely, and many have even experienced the loss of loved ones, many are rethinking what they value most. Being forced to spend so much time indoors and with little travel made our value of nature and our travel goals clearer. Because of this, many consumer priorities have shifted, putting family, nature and travel first.
The “opportunity cost” is the value of the next best alternative option. Rational decision-makers choose the option for which their next best choice has the fewest lost opportunities. The pandemic has forced us to reassess our opportunity costs, and this summer many are choosing to travel to spend time with family and friends rather than (or in addition to) traveling for a typical vacation. An online survey of 1,200 Americans in April 2020 found that 61% said their first trip after the restrictions were lifted would be to visit family or friends.
Others have realized this summer is the time to tick a trip off their bucket list. A survey by the travel site Tripit found that 26% of respondents said they chose a destination from their list of choices.
Many people are also re-examining the value of spending time in nature. A survey conducted at Penn State Harrisburg found that 80% of Pennsylvanians who have visited parks and trails believe that “time spent outdoors is essential to their physical and mental health during the pandemic.” Another survey found that 58% of those polled “did not appreciate nature as much as they should have enjoyed before the COVID-19 pandemic.”
4. There are many shortages in the industry.
Simply put, shortages arise when the quantity demanded is greater than the quantity supplied. Dining out while on vacation is a common “thing to do” for travelers. How will that change this season? The restaurant industry faces shortages in everything from labor shortages to food shortages.
Don’t be surprised if you’re not seated right away due to understaffing. In recent months, since pandemic restrictions eased, the quantity demanded for restaurant meals has been greater than the quantity that can be supplied.
5. Prices have gone up.
Prices in many industries, especially those related to travel, have increased due to increased demand and disruptions in supply chains. For example, gas has increased 45% since July 2020 and 19% since July 2019, which is still higher than prices before the pandemic. Some price increases will be short term and return to pre-pandemic levels once demand decreases and / or supply increases. Hotel prices fell sharply at the start of the pandemic, but are now coming back and, due to high demand, could even be a bit higher than before the pandemic.
The prices of some goods and services could remain higher in the long run, contributing to headline inflation. For example, restaurants are experiencing labor shortages and rising wages. Due to the nature of restaurant meal prices, these higher restaurant prices are more likely to stick around after the pandemic.