Bars, nightclubs, theme parks and museums will be the winners this summer. The "experience economy" is back.
International tourism spending on experiences is quickly outpacing spending on “things” since July 2021, according to a new travel report by the Mastercard Economics Institute.
As of April 2022, global tourism spending at bars and nightclubs is 72 percent over the levels recorded in April 2019, while spending at amusement parks, museums, and concerts is reaching 35 percent above pre-pandemic numbers. By comparison, tourist spending on apparel, department stores, cosmetics and other retail categories is down compared to 2019, with a 27 percentage point difference currently sitting between experience and “thing” discretionary spending.
“The inflection point globally was around June 2021, when experiences really started to overshadow the purchases of things,” said Mastercard chief economist Bricklin Dwyer. “If you think about the supply chain disruption that was going on, there was a momentum of buying more things that created an additional distortion in supply chains. Now, people are really seeking out experiences, which is exactly the trend that we saw pre-pandemic.”
In 2019, during peak seasons of tourism spending in restaurants, international tourism restaurant spending was about 22 percent of total in-person spending, excluding transportation and lodging. At the end of April 2022, the same category of restaurant spending surpassed those numbers to reach 24 percent of in-person expenses. Overall international tourism spending at restaurants is currently 31 percent above 2019 levels.
The return of the “experience economy” is happening globally, with international tourism spending on experiences outperforming spending on things since summer 2021 in countries such as the UK, Germany, and France.
By comparison, markets across Asia have more varied responses to the trend — South Korea and Indonesia are still seeing minimal inbound tourism, while Singapore boasts increased tourism demand.
Mixed Transportation Fortunes
In addition to experiential spending, hard-hit transportation industries are finally seeing a spending rebound.
Global spending on auto rentals and tolls exceeded pre-pandemic levels by the end of April 2022, up nearly 19 percent and 12 percent, respectively. Not only do travelers turn to automobiles as a safer, more accessible form of transportation, but supply chain bottlenecks are also responsible for the spike in price of vehicle rentals.
However, some modes of transport are slightly late to the party when it comes to spending recovery. Global spending on bus lines has just reached 2019 levels for the first time since the pandemic. Similarly, passenger rail spending is about 28 percentage points higher since the start of 2022, but still remains seven percentage points short of pre-pandemic levels.
Dwyer accredited the slow return of certain modes of transportation to new behaviors in the lifestyle of the modern worker.
“Bus lines, passenger railways and suburban transportation failing to come back to pre-pandemic levels highlights the apprehension and the trend of working from home, which prevents mass transit momentum from picking back up,” said Dwyer. “Some of these numbers are leading indicators of how long people are staying or how travel behaviors are evolving.”
On another hand, global spending on parking lot fees have also passed the pre-pandemic threshold, according to the report, which suggests a slow but steady return of commuters and increase in medium to long-haul travel.
Numbers on North American transportation spend show a similar trend, where categories that are most closely tied to the return to office have not yet experienced full restoration. Despite showing signs of recovery, there is doubt as to whether these modes of transportation will ever have as strong of a comeback as observed in auto rentals or airlines.
“If it is the case that we have some sort of hybrid work environment going forward, as a permanent change in how we work,” said Meyer, “it could be that this is where we stabilize and that we’re not going to necessarily return to where we were prior to the pandemic.”
Within countries where working from home is more prevalent, people are spending less on commutes, which in turn saves up money for leisure travel and other discretionary spending focused on experiences.
Aggressive Business Travel Recovery
Meanwhile, the credit card company’s spend data revealed the number of global flights in April topped pre-pandemic levels by 11 percent.
“It hasn’t just been the leisure folks getting back out there, with the pent-up demand, but also on the business side, which has rebounded very aggressively and quickly,” said Dwyer.
For this particular report, the company used its range of partnerships with different airlines, which specify whether flights are for business or leisure, rather than detailing the amount of money spent.
The business travel recovery took a very different path to leisure; it lagged and was falling short earlier this year, Dwyer added. “Then there was a rapid pick-up in recent weeks and months, and business travel has surpassed pre-pandemic levels.”
The report was published as United Airlines revealed a strong recovery in corporate traffic on Tuesday, and American Express Global Business Travel upped its revenue guidance by some $250 million for 2022, off the back of its clients’ increased spending.
Meanwhile, Mastercard tips the corporate recovery to continue as more companies restart hiring. “This translates to more people who can purchase plane tickets and have the budget for other discretionary spending,” the report stated. “More employed people also means greater potential to travel for business for the first time in two years.”
However, it warned of one notable headwind: the operating expense burden facing transportation companies. At its peak in 2021, for every $1 earned by airlines, $8.60 was spent on operating expenses. Wages and salaries as a percent of sales were 18 percent pre-pandemic, but have since grown to 22 percent.
Landing fees and other operating expenses, such as maintenance and repairs, as a percent of sales, remain two and three percentage points higher than pre-pandemic levels, respectively.
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Photo credit: As of April 2022, global tourism spending at bars and nightclubs is 72 percent over the levels recorded in April 2019. Helena Lopes / Unsplash