Several weeks ago, I wrote about how the price of a Disney Vacation has increased. And while the mecca of mouse has increased prices, it is far from alone. Across the board, prices for traveling in the United States have gone up. In some markets, such as New York, hotel prices are now in the stratosphere. Even worse are food and beverage prices, which have increased some 30% since 2019. American cities are now some of the most expensive on Earth to visit, with cities like Boston easily outpacing the Zurichs of the world. About the only solace travelers have is with airfare, which has stayed mostly level over the last five years. All in all, this is the most expensive travel has been in the US in decades.
To be fair, prices have gone up across the board. After pumping $5 trillion into the US economy during Covid, people started spending. The “great resignation” of 2021 meant that firms, especially in hospitality, had to deal with increased labor costs. Prices went up on everything from oranges to pedicures. Still, tourism prices have risen faster than in other sectors of the economy.
There are a few causes of the shift. First, pre-Covid, there were mental barriers that kept prices low. Budget travelers weren’t willing to pay more than $100 a night for cheap lodging. Luxe travelers, even those who could afford it, wouldn’t pay over $1,000. Then Covid hit. For a year, travel was largely circumscribed. Flights were half empty. People stayed at home. Then Covid ended. People were vaccinated. States rolled back restrictions. People were ready to travel again.
And they did. All of a sudden, the previous mental barriers were gone. Everyone wanted to get out, to hit the open road or the friendly skies and visit new places. Hotels quickly booked up. As a result, prices rose. This wasn’t because of greed or ill will; it was what any company should do. If a hotel sets its rate at $200 a night and is usually full, that hotel is leaving money on the table. Every potential guest that is turned away because there’s no room at the inn is lost revenue. So prices went up. At every price point, travelers were willing to pay more. Roadside motels hit triple digits a night. Upscale resorts hit four. Restaurants raised their prices.
A second shift, also related to Covid, has kept prices high. The rise of remote work. For millions of American workers, many of them highly paid, going to the office is no longer required. Even those whose job is officially in-office, remote work is often acceptable as long as it’s not done regularly. Employees at many firms are free to “work from home” on the occasional Friday, or even for a week, as long as they are generally at the office. This has created a whole new class of “extended weekend” travelers. Workers can comfortably put in four days at the office, travel Thursday evening, answer a few emails, attend a meeting on Friday morning, and spend the rest of the weekend relaxing by the pool, all while maintaining their PTO for longer trips.
These two changes, the first in willingness to pay, the second in ability to travel, have significantly increased demand. That increase in demand has led to an increase in prices. Absent a recession, expensive travel is likely here to stay because of the third reason: constrained supply. As I’ve written about extensively on Econ Soapbox, it is becoming impossible to build in America. This is doubly true in areas with cultural importance, which is where one would expect the most new construction in a tourism boom. Instead of countless new hotels, restaurants, and other tourism infrastructure, most resort areas and cities look about the same several years into the boom. Offices aren’t being converted into hotels. Parking lots aren’t transforming into restaurants. Some places, notably New York, have even gone the other way, actively decreasing the number of places for tourists to stay. By constraining supply, the government is ensuring prices stay high in the face of increased demand.
The good news, for Americans at least, is the existence of an alternative option: travel abroad. Prices have risen around the world, but in most places, those increases have been smaller than in the US. Much of the world is increasingly affordable for Americans to visit. It would surprise many Americans to know that traveling abroad is often cheaper than traveling domestically. Those living on the East Coast can go to Europe. Those in the South to Central America. Those on the West Coast, Asia. International flights are often more expensive than domestic ones. Apart from that, however, Americans will find that costs are much lower abroad. Hotels that would be $300 a night in the US are often half as much in Central Europe. A nice dinner in Italy may cost a third of the price one would pay in America. No rental car is needed to see France. The prices have diverged so much that a week in Europe is significantly cheaper for a New Yorker than a week in California.
High prices in America are likely here to stay. See the world instead.