CLEVELAND, OH – Jenny Hawkins, an assistant professor of economics at the Weatherhead School of Management Case Western Reserve University, gives her perspective on the ever-changing economic ecosystem that the travel industry has to face in summer 2021.
The pandemic has affected every aspect of livelihood and businesses, especially the one within the travel industry. The restrictions and regulations for quarantine, staying at home, and other health protocols to suppress the outbreak pushed the travel industry to adapt and hold their services.
However, the increase of vaccinated people these days slowly loosened the restrictions to travel. People are starting to show interest in travel, and the travel industry once again needs to re-adapt to the trend changes.
Hawkins says that the first thing that the industry has to face is the changes in supply and demand. During the pandemic, businesses were forced to lower their supply by selling it to keep their businesses intact. Hawkins shows examples of how the car-renting businesses have one-third of their cars sold to survive during the pandemic.
When people start to need their services, they will have a lower supply to meet the demand. As a result, prices will increase to cover the losses they suffered last year. It is shown on Kayak.com that cars for rent have been priced $30 higher than the pre-pandemic price.
The consumer's price sensitivity will shift next. Since people have spent most of the year at home with limited mobility, they will appear more willing to leave their homes and travel this year. As a result, they are willing to pay a premium to compensate for their time at home last year. This phenomenon is explained by the price elasticity of demand, a measure of how sensitive customers are to changes in goods or services.
The following development that could affect the travel sector this summer is a shift in priorities. Since the ban on family, nature, and travel bucket lists is relaxed, most individuals begin to change their priorities. According to an online survey conducted in April 2020, 61% of 1,200 Americans chose to make a family visit after the limitations were lifted. Others have chosen to spend their summer visiting one of the destinations on their bucket list. According to Tripit, 26% of respondents are planning their travels based on their bucket list.
With all of these changes, Hawkins expects that supply shortages will occur across industries as demand increases. For instance, travelers will dine at local restaurants while staying at local hotels. The F&B and hospitality industries will also face increased demand from tourism sector consumers.
Changes will once again affect the ecosystem, particularly for those planning to travel this summer. They should anticipate price increases, since some have already occurred, such as the 45 percent increase in petrol prices since July 2020. This is due to the pandemic's interruptions of supply-demand adjustments. Certain rising prices may remain elevated in the long run.
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