It's almost as american as apple pie.

This summer, take a trip back to 1981.

How would you two like to come to my house at the beach?

I made itineraries. Everything we're gonna do minute by minute on a trip. Why don't you go on a vacation? If you go to Hawaii, welcome to Turtle Bay and enjoy your stay.

Kyle, in the car. Come on, Clark. I think we're lost. We're not lost.

Ellen, will you please let me do the driving?

And of course, the most time honored.

Tradition of all, the road trip.

Every summer, millions of people around the country pile into cars, trains, cruise ships and airplanes in search of some much needed rest and relaxation. But summer vacation season is anything but restful for businesses in the travel, tourism and hospitality sectors. For them, it's go time. With hundreds of millions of dollars at stake, and with that kind of cash on the line, why wouldn't we talk about those not so lazy days of summer on wheel of risk? Welcome to wheel of risk, proudly presented by Allianz trade. I'm your host, Alex McCabe. On every episode, we spin the wheel to choose a topic, then provide expert insights and actionable advice to help you keep your business solvent, secure, and well ahead of the competition. Today, I am honored to welcome a colleague, friend, mentor, and regular contributor back to the podcast. Dan north is our senior economist for North America here at Allianz Trade. Dan, it is fantastic to have you here again for season three.

Thank you so much for having me. It's my pleasure.

We're glad you're here. Now listen, I hope you've been staying in shape during the off season because it is time to spin that wheel, Dan.

Ah, okay. Well, alrighty. Here we go.

That was a strong spin.

Hey, you know it. I've been in the gym.

Well, that's nice timing because you've landed on walking on sunshine. A deep dive into the economics of the summer travel season.

All right, let's go.

Grab your swim trunks and an ice cold beverage. Dan, I will meet you down by the pool. Whether it's a quick weekend at the beach, a family trip to the cabin, a ten day cruise, or a destination vacation, every type of travel has knock on effects for the economy. Obviously, the decade started off on a sour note for the travel industry, thanks to Covid-19 but the post pandemic comeback has been equally dramatic. Last summer, for example, the projected total spend was up a staggering 261% from 2020 to about $214 billion. So let's begin by putting those numbers into context, Dan. Okay. How important is the summer travel season to the economy, both generally and in specific regions.

Okay, so there is a giant impact on the economy. And I want to start off just by reiterating one of your stats, which is that it's worth $214 billion to the economy. Now, as an economist, you always have to compare that to something else. So let's look at total airline revenue for the entire year. For the entire us, all the airlines put together in 2023, all of the total airline revenue was $223 billion, just a shade more than all of the economic contribution from summer travel. So that's a pretty big number. Now, the impact, it's spread around the country, but it's obviously concentrated in some areas, like Orlando, for instance, or LA. They have the theme parks, like Disney or Universal or Epcot. And in LA, you've got some other things, like Knott's Berry Farm and the La Brea tar pits. Have you ever heard of the La Berea tar pits?

I have heard of the tar pits, but not the Berry farm.

Well, these are real places. They used to be a source of continuing jokes on the late show, but they're real theme parks. And also any place where you get lots of touristy stuff, like New York or Las Vegas or the beaches. And just to give you an idea, the biggest demand for car rentals is in those three, Orlando, La and Las Vegas. And the same for hotel searches.

I've rented cars in all of those places and had hotel stays as well. So just so we're clear, Dan, when we say summer travel season, what sort of timeframe are we talking about here?

When I was a kid, just a few years ago, it was last week, it was Memorial Day, or even earlier into Labor Day. Now, in public schools, a lot of kids don't get out until the middle of June, and they're returning in August. So it's like they're getting a much abbreviated form of summer vacation than I used to get. But there's some other interesting facts I want to tell you about summer vacation. The US has the second least vacation days in all the world.

Who has less?

Micronesia. So Micronesia has nine days. We have ten. Nauru, ten palau.

Wow.

So part of that is that there is no law, really, in the states that you have to offer any PTO paid time off. So 28 million Americans don't get any paid vacation or paid holidays.

Wow.

As I said, the US, the only economy in the world that doesn't guarantee its workers paid vacation days or paid holidays. 28 million. There are ten public holidays. Again, which don't have to be given. And on average, companies add on another two weeks or so after the first year. So on average, it's about 24 days. But 55% of Americans don't use all of their paid time off. As you know, as an HR person, Americans lose nine and a half days of PTO every year. On the other hand, 63% of employees said, I wouldn't take a job if I didn't get the PTO I want. They want it, but then they don't use it. That's human nature.

How very american. So hotels, travel agents, airlines, those are pretty obvious examples of businesses that see seasonal bumps. But if a rising tide lifts all boats, what are some others?

Well, I think like what we talked about at theme parks, like Disney and Epcot and Universal and that sort of thing. But then you have national parks as well, like Yellowstone or Yosemite. They get wildly overcrowded in the summertime, so they're very seasonal. And Airbnb business goes up. Car rentals, restaurants, housing for seasonal workers on the water side got commercial and pleasure boating and fishing and marinas, and then all those shops on the boardwalk, all those little shops that sell the t shirts that say, I'm with stupid, and the saltwater taffy shops. So it really goes down the chain. And you don't have to go too far down to see the impact of summer vacation on the economy overall.

Yeah. Some real downstream effects. What sort of indicators can help economists like you predict how a season is going to go?

I always like to say that 70% of the economy is driven by consumers. That's what we're looking at here. Consumers need two things to spend money. They need the willingness to spend money and the ability to spend money. Willingness we can measure by several measures of consumer confidence. One of the most prominent one is produced by this organization called the conference board. It's a phone survey asking, how do you feel about things now? How do you feel about things in the future? Are you going to take a vacation? And so forth, so on. And they turn that into a numerical measure. And right now it's at 105. And over 100 means the economy is strong. So you could say consumers feel pretty good about things. They're pretty willing to spend money. Now, the other part is the ability to spend money. And to do that, you have to have money. So one of the most primary things I look at is this number called disposable personal income. That's dollar amount of income after inflation and after taxes. It's the disposable amount you have left over to spend. Well, that has been waning recently. It's still growing, but at a much slower rate than it would historically.

Another source would be what I would call accumulated savings. And this might be something like putting money away into a separate account every month for a vacation, but it's waning, too. So we have disposable income that's waning. Savings that are waning a little bit. So now where do we go? Well, yay, we're in America. We use credit cards. Credit card debt is rising pretty fast here in the states. People are using their cards, and they're using them at really what I would call outrageous interest rates. I think the average rate is, like, 21%, but makes you wonder about the sustainability even of credit card spending. But for now, let's walk away and say we do have the ability to spend, even though disposable income is on the wane. So that's the willingness and the ability. We might look at some other things, trends in discretionary spending, such as you might find in retail sales. And then, of course, we can get guidance from public companies like Walmart or Amazon or any number of retailers. And they are always telling us about what their expectations are for the next quarter. You know, they give a forecast of how much business they expect to do.

And right now, what we're hearing from them is things look pretty good all around.

Okay, so let's discuss the specific risk factors that are facing these summer businesses, because it's important to understand how vulnerable they can be to circumstances that are both within and completely beyond their control. Here in Baltimore, where we are based, for example, we've seen firsthand the impact that losing a major bridge can have on business. Right, Dan?

Absolutely. Yep. The key bridge, Francis Scott Keybridge, was knocked down a couple of months ago by an out of control ship. And we actually look out on it right from our offices, and it's a terrible personal tragedy, and it's horrible to see. It's one of these things you can't really believe what you're seeing.

It's shocking.

It really is.

Yeah.

And, you know, in terms of an economic impact, this bridge, which all of us and our office have driven over many times, is vital. It carries about 30,000 cars every day, or over 11 million a year, and it feeds directly into Interstate 95. And that is the largest interstate in the entire country. That harbor there are lots of cruise lines go in and out, as well as commercial ships. And Carnival said it's going to knock $10 million off our profit this year that we can't get in and out of that harbor for some time. So it's a serious effect there on summer vacation. And then there are a couple of others that I think are pretty interesting. There's always hurricanes to worry about on beach vacations. They don't hit that often, but they are certainly there.

A hurricane hit during my honeymoon.

Oh, is that right? Where was that?

It was in Bermuda. We had to leave early. Yeah.

Oh, well, there you go. A few years ago in Iceland, there was a volcano and it spewed so much ash into the air that it's canceled 100,000 flights over an eight day period. Wow, eight days worth of flights. And then wildfires like we have in Canada. And then finally sharks.

Sharks?

Yeah. Sharks can ruin a beach's season.

You know, shark is in the water.

Yeah, absolutely. Absolutely. So there's a pretty broad range of stuff that could ruin local businesses vacation.

A shark would certainly ruin my trip.

Yep.

So what about economic factors like gas prices? Because it's almost a cliche at this point. They go up every summer, usually just in time for a long weekend. Right. So why, dan? Why?

Why? Well, that was very dramatic there.

That was, that was super dramatic.

You would like to think that it's supply and demand and that is certainly it's not. It's part of it. But there are some other things that aren't well recognized. First of all, 25% of refineries every year have to shut down completely for maintenance. And that limits capacity into late May. And the rest of it is due to our friends in the federal government. Because of EPA regulations, refineries have to switch to a summer blend of gasoline. It contributes less to pollution. And this switch over from the winter blend can add as much as fifteen cents a gallon. So it's a combination of things.

Wow. I didn't know that.

Yeah. Yeah.

Interesting. A summer blend. Good to know. What about hotel prices, cruise ship tickets, air travel? Those fluctuate a lot as well.

Yeah. And again, we get back to seasonal supply and demand. But there are a couple of things that are a little bit different this year. For instance, airline tickets, they're now below pre pandemic levels. They're 24% below the peak of May 2022. And as March this year, they're down 7% year over year. Why is this? Theres still less business travel. I mean, Covid really did change a lot of things, maybe permanently. And we have less business travel. So thats part of it.

Sure.

And we do have more capacity. Airlines are adding more flights and more planes. So theres more capacity as well. And there are now more low cost competitors. And the thinking actually is that airline prices may even drop further in 2024. You think in the summertime, with supply and demand, airline tickets are going to go up? No, they're already cheap and they might go down. On the other hand, cruise prices are high. They've recovered from the pandemic and they're higher this year because of surging demand. People want to go on cruises. I'm getting some information from Cruz, critic and TripAdvisor. The average price of a five night cruise in the Caribbean for December is up 37% from last year. I mean, that's a pretty big jump.

Yeah.

And compared to 2019, the pre Covid prices, they're up 43%. So there's big demand for people to go back on cruises. I really don't know why, but people like to do that.

I've never been on one.

Yeah, I don't want to go on any boat where I can't get off on the same day.

No, no, no, no.

But a lot of people do, and they like it.

So is there a right time to book or at least a better time than others?

Well, you can go to all kinds of websites or get magazines and that sort of thing, and they'll give you similar advice, which is one you should fly in the middle of the week. Supposedly, travelers who fly on Tuesdays or Wednesdays can save an average of something like 18% per ticket. And another tip is that you should probably book the first flight of the day. And I always do that because you figure, yeah, it's not that much fun, but it's the flight that's the least likely to get canceled. And just one last tidbit. Gasoline. Gasoline tends to be cheapest on Sundays and Mondays and the most expensive on Thursdays.

I'm going to consult you before my next trip.

I got some more stuff here. Keep going.

I'll pay you a fee. I mean, this is really golden.

Okay, good, good.

Okay. So let's talk about ways to reduce risk. First, to business owners, what would your advice be?

Well, look, the pandemic was the premier example. I think most of us are likely to ever see a business interruption. For instance, our offices were in an office park, and there was a restaurant in the office park that relied on everybody for business. Well, everybody left the office park when Covid struck and that restaurant was gone. Now, suppose you'd been selling this restaurant food or kitchen supplies or dining room supplies. You're gone, too. So while it's great if you're the restaurant, for instance, to have business interruption insurance for your own company, it's also great to have business interruption insurance on the people you sell to because again, if they get interrupted to death, you could too. I would say business interruption insurance, which could take the form of trade, credit insurance can be really helpful.

Good tip. If we flip the risk reward scenario around like we learned to do in episode one, whats the opportunity here for businesses, Steven?

So again, we can get back to the pandemic times where business is way off. So you would really like to expand your business, grow your business. Since some of your clients are shutting down, you might need to sell to new businesses that you dont know anything about. Well, we probably do know about those businesses and whether theyre credit worthy or nothing, whether you can safely sell to this new potential client, we can help you with that. Because of that, you can actually grow your sales more safely with us. That's an important part of what we do for our clients.

So credit insurance as a growth engine?

Absolutely. And actually that's what most of our clients really use us for. And so it actually turns into a product that's not so much a cost, not just a plain insurance line item. That's a cost. It can actually offer a return. You can actually increase sales with this.

So keeping in the theme of advice, what advice would you share with summer travelers? How can they prevent their dream vacation from becoming a nightmare?

Well, first, just do a web search on travel hacks. It's amazing what you'll find. One I found was pack your stuff into plastic sandwich bags. You can buy these bags that have a vacuum pump so that the bag shrinks way, way down in size. It saves a ton of space. And then really, if you can keep it down to one bag, you're doing an enormous favor to yourself. And I've seen people that have a lot of stuff that they really need to take, like for instance, ski equipment, and they're going to be away for a while. Ship it to your destination instead of trying to carry it with you. This is why I really love to stumble on this. There are a few sites that talk about airline rights, what they owe you. These sites read the fine print for you, tell you what airlines have to do for you if your flight is delayed or canceled. And remember, like we talked about earlier, hurricanes, wildfires, volcanoes, lost luggage, all those things can ruin your vacation. And one way to protect yourself is by travel insurance. Allianz offers a nice program of travel insurance as well.

All right, Dan, I hope you like it hot, because it is time for a little segment we like to call hot or not. Here's the deal. I have a list of travel trends we've seen emerge over the past few years, and I want you to weigh in on whether they're still hot or not. How's it sound?

Well, I gotta tell you, travel to me, used to mean, you know, you go to the beach or the mountains or overseas or something like that. And now we have travel themes. You know, I'm not wild about it, but I'll play along. So go ahead.

Thank you for being a good sport. All right, first up is astro tourism. Okay, I hadn't heard of this. This is when you travel somewhere with the goal of seeing an astronomical phenomenon like an eclipse or the northern lights.

What'd I tell you right there? Astro tourism. Really?

Yep.

Well, actually, my wife did do this a few years ago. She went to see a total eclipse, and she said it really was incredible and she would easily do it again. I'm just not sure how big that market is. There are only eclipses every few years and comet showers that you can see, not that frequently. So it's interesting, but I can't imagine it's a giant theme.

All right, next, home swapping. Okay. When you save on accommodation costs by staying at someone's home in exchange for letting them stay in yours.

I don't want anybody staying in my house. Okay.

No, me neither. Me neither.

And I don't like very much staying in someone else's house either. However, it is really a clever idea. You get to save on lodging 100%. So I really do like that idea. From that aspect, they better be really good friends or people that you know very well. Otherwise, I'm not too wild about the idea.

All right, what about rving, camping, and other types of outdoor travel that really exploded during the pandemic?

I think that that's probably winding down a bit. I think it maybe was a nice thing to get away and get outside, but there's some downsides to it as well. And personally, I prefer glamping. Me, too. Glamor camping, it's the best. You go out hiking during the day, you're outside and it feels great. And then you go to the Ritz for the nighttime.

Perfect.

Yeah, that is perfect as far as I'm concerned. I like that idea.

You won't catch me in an rv or in a tent, at least not willingly, unless I'm doing something with my kids. But I could glamp. I could do some glamping.

Yeah, it's the way to go.

All right, what's your take on plan free travel? Okay, so this is where travelers toss out the detailed itinerary in favor of living like a local.

Actually, I think that could be really cool to go to some location and live like a local, see how it is to actually live there or be part of the culture. But the plan free part, that would probably make me nuts. I need to have something to do and if I'm waking up one day and saying, oh, well, what are we going to do today? I'm not wild about that.

I get that. All right. Lastly, I've seen suggestions that shoulder season is the new summer. Any thoughts? So shoulder season is people traveling off peak times of year, like March through May, September through November, which are usually cheaper.

Yeah, I think that's a terrific idea and I really enjoy that. I mean, when you think about it here in Maryland, it's warm into September and even October. And I suspect it's like that in other parts of the country as well. So you don't need to be in high summer to enjoy a, quote, summer vacation. Or out west, they're skiing into April. So the shoulder season I think is pretty cool. The only problem is if you have kids, it's kind of hard to pull them out of school for a week.

That's always been the challenge for me. Yeah, this is really good stuff, Dan. Personally, I'm a big fan of the planned free travel. Not entirely plan free, but at least having a couple of days when you're in a destination, particularly if it's overseas, to not have a very detailed agenda where you're jumping from place to place, go to the local cafe, hit the shops, walk around. That I can do, but not for an entire vacation.

I'm with you on that.

So before we wrap up, Dan, what makes the perfect summer getaway for you?

Much to my wife's chagrin, I'm more of a staycationer this year. She's been to Key west for a long weekend with her girlfriends and then went to Peru for ten days. I didn't go on either of those trips and she knew that she it wasn't worthwhile even asking me to go. There's stuff I like to do here and I've been on the road a fair amount in my life and it's getting to be a hassle. It really is. It took us so long to get to one destination and back recently. It's like this just kind of ruins it. It's just not worth it. So staycation for me, I'm afraid.

I love a good staycation.

Yeah, it's a way to go.

Oh. Sadly, just as all summers must eventually end, that music we're hearing means we're out of time for today. Dan, you've given us a ton to think about, and thank you as always, for being a great contributor to our podcast.

Thank you so much. It's always enjoyable talking with you, Alex. Really appreciate it.

My guest today has been Dan north, our senior economist for North America. I'm Alex McCabe, and this is wheel of risk brought to you by Allianz Trade. Thanks so much for listening. To learn more about how a partnership with Allianz Trade can benefit your organization, please visit Allianz Trade Us podcast. That's a l l I A n Z. Trade us podcast. You can also follow Dan and myself on LinkedIn. We'd love that. Talk to you soon.