Key takeaways

  • Despite the cost-of-living squeeze, consumers in most regions continue to prioritize vacations abroad.
  • Airlines are benefiting from strong travel demand, lower fuel prices and a weaker greenback, especially as most costs are dollar-based.
  • Similarly, the summer travel outlook looks largely positive for hotels, online travel brands and cruise lines — but this will depend on the resilience of the consumer and their willingness to travel in the coming months.

Outlook overview

The 2023 summer travel season will soon be in full swing, and the uncertain macro environment does not appear to be dampening consumers’ vacation plans. Indeed, the World Travel & Tourism Council (WTTC) forecasts that the global travel and tourism sector will reach US$9.5 trillion in 2023 — just 5% below 2019 pre-pandemic levels.

The positive summer travel outlook is echoed by data from J.P. Morgan Research. The third edition of the Cost of Living survey — which polled 5,000 respondents across the U.S. and Europe in March 2023 — suggests that vacations continue to be a relative priority for consumers, ahead of other non-essential items. In particular, trips abroad are growing in popularity. In the U.K., the percentage of respondents choosing long vacations abroad increased marginally in March, while the percentage of those opting for staycations decreased. The U.S. saw a decrease in long vacations abroad, but an increase in minibreaks abroad — and a deceleration in domestic travel.

“According to our proprietary data, U.S. domestic travel revenue in the second quarter of 2023 is starting to pace toward that of the second quarter of 2022, but this is largely offset by surging international demand. It’s important to note that most international markets were closed to Americans last summer, which caused significant domestic substitution,” said Jamie Baker, U.S. Airlines and Aircraft Leasing Analyst at J.P. Morgan. “This largely reflects geographic trends beginning to normalize after last year’s period of significant abnormality.”

What’s the outlook for summer travel?


The cost-of-living squeeze does
not appear to be dampening consumers’ travel plans. 


In particular, vacations
abroad continue to be a relative priority for consumers in most regions.


Airlines are benefiting
from strong travel demand, lower fuel prices and a weaker
greenback, especially as most costs are dollar-based.


The outlook is also
positive for hotels, online travel agencies, vacation
rental companies and cruise lines — but this will depend on
the resilience of the consumer in the coming months.


Consumers continue to prioritize vacations abroad

% of respondents who chose travel as their top three non-essential items to prioritize over the next 12 months, March 2023 vs. September 2022

Travel trends are slightly different in China, where consumers continue to prioritize domestic getaways — although this looks set to change. “We believe China’s reopening bodes well for the restoration of international flight connectivity and the revival of outbound tourism from the second half of 2023,” said Karen Li, Co-Head of Hong Kong Equity Research and Head of Asia Infrastructure, Industrial and Transport Research at J.P. Morgan. “The country’s full international recovery will take place in 2024.”

The outlook for airlines this summer

Naturally, resurgent summer travel demand is a tailwind for the airline industry, which is enjoying strong ticket sales. Airlines are also benefiting from lower fuel prices and a weaker greenback, especially as many costs are dollar-based.

“Although estimates across the board have moved up materially, the relatively benign fuel environment combined with yield outperformance still leaves scope for earnings upgrades across our coverage,” said Harry Gowers, European Airlines and Travel Retail Analyst at J.P. Morgan. “Consumers are proving resilient to the cost-of-living crisis, and we expect the strong demand environment to continue into the summer months.”

In addition, airline capacity for both short- and long-haul flights in Europe remains below 2019 levels due to ongoing staffing and aircraft shortages. This is creating a supply-demand imbalance, helping to push airfares higher.

“The biggest risk to a great summer of profitability for the airline industry continues to be whether the system can cope with the level of demand. Operational disruption and widespread flight cancellations, similar to what we saw last summer, also pose a constant risk,” Gowers said. “But overall, bar any external shocks, the setup into summer 2023 continues to look encouraging.”

Overall, bar any external shocks, the setup into summer 2023 for the airline industry continues to look encouraging.

Hotels have staying power this summer

Resilient summer travel demand also spells good news for the hotel industry. “European hotels have had a good run year-to-date, up circa 25% on average and outperforming the MSCI Europe Consumer Discretionary Index by circa 10pts,” said Estelle Weingrod, Head of European Leisure Research at J.P. Morgan.

While overheads are increasing due to inflation, hotels are successfully passing on higher costs to consumers, as seen in higher RevPAR (revenue per available room). “When it comes to RevPAR, momentum remains supportive overall versus a comparable 2019 period,” Weingrod noted. In March 2023, RevPAR in the U.S. was 114% of 2019 levels (in USD); the figure was 123% in the U.K. (in GBP), 115% in Continental Europe (in EUR) and 98% in APAC.

In addition, first quarter results across J.P. Morgan’s coverage universe have been largely positive. However, this is in part due to easy year-over-year comparisons — the hotel industry was heavily impacted by the Omicron variant in early 2022. “We will continue to assess positioning as solid reporting within the space will likely move expectations up over time, raising the bar on the quarters ahead,” Weingrod said. “Also, hotel shares typically start to underperform when RevPAR starts to decelerate, which should happen from the second quarter of 2023 onward as comps become more challenging.”

A mixed summer for online travel brands

Similarly, the outlook for the online travel market looks largely positive for summer 2023. “Most of the online travel names in our coverage universe saw a strong start to the year. We believe overall online travel demand remains healthy into peak summer travel, with limited signs of a macro-related slowdown despite some softness witnessed in the overall consumer,” said Doug Anmuth, Head of U.S. Internet Research at J.P. Morgan

However, while online travel agencies are poised to enjoy strong summer travel momentum, some vacation rental companies could experience a deceleration through 2023. “This is as the vacation rental industry normalizes from 2021 and 2022 highs, coupled with the possibility of limited supply growth,” Anmuth noted.

Overall, sustained demand will be a key concern for the sector in 2023. “Our checks suggest engagement and travel search activities are mostly in line with normal seasonality, showing that demand remains stable,” Anmuth said. “However, with a minor recession expected in the second half of 2023 by J.P. Morgan economists, we believe the health of the consumer and their willingness to travel remain critical for our online travel names.”

We believe the health of the consumer and their willingness to travel remain critical for our online travel names.

The cruise industry makes a recovery

The cruise industry, too, is on the rebound after a lengthy period of COVID-19 restrictions. “Our fieldwork and recent management access across the Big Three cruise operators point to fundamental momentum year-to-date, with a record-breaking wave season [the time of year when cruise lines run their best sales] led by broad-based demand across customer segments, regions and customer demographics,” said Matthew Boss, Head of Department Stores, Specialty Softlines and Leisure at J.P. Morgan. Additionally, in April 2023, Chase credit card data for the “Other Travel and Entertainment” category, which includes cruise-related spending, tracked +47% year-to-date versus 2019.

This travel recovery is being driven by several factors, including higher ticket prices, the growth of the experience economy — where consumers prioritize spend on experiences than on material items — and a more premium fleet offering within the cruise industry. “Around 25 to 30 older ships were disposed of during the pandemic, raising consumer cruise perception and overall pricing power,” Boss observed. “Overall, while the pandemic was the largest demand shock in the history of the cruise industry, we see the industry benefiting over the next three years from these drivers.”

The cruise industry is rebounding post-pandemic

Global ocean cruise passengers (millions)

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