The cost of vacations is getting more and more expensive for travelers around the world, and that trend isn’t abating, according to car rental company Hertz.
Stephen Scherr, a former chief financial officer of Goldman Sachs who was named CEO of Hertz in February, spoke about the rental car market and what it says about the future prospects of the travel industry during the call for this week’s first quarter results.
According to Scherr, forward bookings this summer show there’s still room for the travel industry.
“All indications point to an extremely busy summer,” he said, adding that “a delayed consumer response” should allow the travel industry to continue to recover this summer.
“The car rental industry and the travel industry in general are going to be the beneficiaries of what I would describe as a lagged consumer response, which means if you look at a range of other industries, the stimulus led to an increase in consumption in the second half of 2021 If you think about travel, travel hasn’t had that opportunity yet, largely due to COVID and the restrictions that have been put in place,” said Scherr.
Two segments, in particular, will drive this summer travel demand: business travel, which has yet to recover according to Hertz data, and inbound international travel to the United States, which has also not recovered. more upright.
However, while Scherr said Hertz will be the beneficiary of this “delayed consumer response”, there are still fleet supply issues that will impact Hertz and other car rental companies in the future. future, and these problems will continue to keep prices high.
According to data from the St. Louis Fed, which tracks car rental vehicles, average car rental costs fell from $102 in April 2020 to $258 in July 2021. That number has fallen since the price of March 2022 to just under $220, according to that same data, but that number is already on the uptrend since the January 2022 low of $183.
And a continued shortage of used cars and a supply of new vehicles coming into Hertz, along with inflationary cost pressures, could continue to keep those prices high through the summer.
“Recent industry dynamics of limited fleet supply, combined with the rapid recovery of post-COVID travel, has led to demand for rental cars significantly exceeding available supply, which is reflected in the price,” he said.
Apart from car rental, the cost of flying is also increasing for Americans.
The average round-trip airfare to the United States for March 2022 was $540, an increase of 41% from $382 in March 2021 and an increase of 11% from March 2019, when the average ticket was $487. That’s according to new data released by Airlines Reporting Corp. (BOW).
According to ARC, the $540 price is the highest average price since June 2015, when the average ticket price was $548. And even with the increases, consumers are still more than willing to spend on travel.