Rising airfares no match for a consumer going full throttle on experiences

Hello, and welcome to Global Research Unlocked, where we discuss what's rising from growth industries to rising risks and opportunities in global markets. I'm TJ Thornton, Head of Product Marketing at B of A Global Research, and we're recording this episode on Wednesday, May 20th, 2026. I think coming out of the pandemic was probably the only other time when I've spoken about such healthy top line fundamentals.

Airline stocks typically trade on top line revenue momentum, so this environment is typically very good for relative performance. However, yeah, I feel like the investor sentiment today is fairly lukewarm on these stocks, as these days, I think the stocks are driven a lot more by geopolitical and fuel headlines than anything from a revenue perspective. Summer is about to start, unofficially at least, and gas prices have increased the cost of travel at the same time that one of the low cost carriers has stopped flying.

Last week, we hosted a number of airline managements at our New York conference, and today, Andrew DeDora will discuss what he took away from those meetings on the topic of demand elasticity, and he'll also discuss his views on the broader leisure category, which is being impacted by higher costs, but also some interesting structural themes. Thanks Andrew, for joining us today. Thanks for having me, TJ.

So Andrew, along with a few other analysts, you hosted the B of A Transport, Industrials, and Airlines conference last week. Airline ticket prices have gone up with fuel since the start of the Iran war. Have the airlines noticed any impact on demand?

Yes, TJ. So we've actually been writing a lot about this over the last month or so, since this has certainly been a major theme out there in the market, and when you look at recent macro data, airline fare CPI rose nearly 21% year over year in April. This accelerated for March's 15% increase, and when I speak to the airlines that are my coverage, this does seem like a good approximation as to the health of the overall fare environment.

We not only see this in a lot of the macro data, but we see this in our data as well. If we just look at the BAC debit and credit card data, spend right now in May is currently up somewhere in the mid-teens with spend per transaction, the vast majority of that increase. So no matter where you look, the pricing trend out there in the airline industry is pretty healthy, but we know well that typically at some point the consumer is going to give, and we as analysts, investors, and all the airlines are certainly looking for signs of that pushback.

But the consensus at our conference last week was that no one was really seeing it yet. The booking trend is healthy into the peak summer, but once the airlines see any indications of some sort of slowdown, I think that they're going to be quick to manage capacity down in order to keep pricing where it is. They're at a point where they need to do this, given where jet fuel prices have gone and the impact that has on profitability, but to date, we haven't seen any real pushback from the consumer yet.

Okay. And Andrew, aside from airline demand, any other interesting takeaways from the conference that are worth highlighting, other things that companies said, or even maybe a sentiment read from clients who were attending? Yeah, for sure.

So it's interesting, right? There haven't been too many times where I could speak about airline spend being up mid-teens. I think coming out of the pandemic was probably the only other time when I've spoken about such healthy top-line fundamentals.

Just to give you some overall perspective on fuel here, 20% of an airline's operating expenses come from fuel and with margins pretty thin across most of the sector. These headlines from a geopolitical and fuel, oil perspective are driving the stocks more than anything else these days. Andrew, you were touching on capacity before.

I was going through some of your recent notes and you wrote that airline capacity growth is expected to be flat from May to August on a year-on-year basis. Is that slower than the pace that we've been seeing? And how does this bankruptcy of the low-cost carrier that I mentioned at the top impact that number?

Yes, for sure. If we look at domestic capacity just from last fall till this spring, growth was generally in that one and a half, 2% range month in, month out. Historically, one and a half, 2% is a very healthy number, right?

If we look at the long-term average since 2000, average growth was nearly two and a half percent. Go back just 2024 and 2025, capacity grew three, 4%. The industry is much more focused on capacity than at most other times in history.

In fact, growth was mimicking the years after the financial crisis and the last big wave of consolidation across the industry when overall domestic capacity grew just over 1% for about four straight years. That one and a half, 2% growth number has become pretty close to flat after that airline ceased operations a few weeks ago. It seems like flat is sort of the new trend line for now and we'll have to wait and see how oil behaves in the back half of the year and see the impact that has on growth in the fall through the holiday period of 2026.

So flat from an airline perspective is good, I guess, when it comes to profitability. But the other thing, of course, that's going on this summer is that there's a large soccer tournament that has a bunch of locations throughout the US and North America. Any indication yet of what sort of impact that might be having on air travel?

I mean, I don't have too many data points to share on this because late June, early July are a bit far out from an airline booking curve perspective. Over half of airline passengers book within the month of travel, so we're slowly getting into that sort of window. The one data point I do have actually just came out yesterday and a major airline did say that they're seeing in aggregate about a 20% bump in bookings to North American cities that are hosting large matches from that kind of mid to late June period.

So not a lot of color on July, but the late back half of June, certainly seeing a little bit of a bump from that event. And I assume that that's both people who are being sourced domestically and then international, or is it one or the other? I think that's an overall number, both domestic and international.

Yes. Okay. Understood.

Cruise spending. We've talked about it on the podcast before. We have a note every month that recaps our card spend data, and often we feature cruise spending because it looks so strong.

The monthly BIC data often shows double-digit year-on-year growth and spend. But is that cruise customer more susceptible to getting squeezed by higher gas prices? Should we expect that strong growth to continue?

Or could they be more impacted even than the typical airline customer who I know is generally higher income? That's a good question, but one I don't have a definitive answer to. I guess the way I think about it is that the core travel consumer is really not the low-end consumer.

Maybe a certain brand or two would skew that way, but when you think about the average cruise customer, their average income is over $125,000 per year, right? Also in airlines, most passengers fly just once a year, and it could be for many other reasons besides vacations, right? They're visiting friends and family, they're going home for the holidays.

That sort of ends up being a one-time expense that people will always find a way to pay for. So I think if you break down the different demand cohorts within travel industries, you might see it a little bit more acutely in one over the other. And like I said, maybe a lower-end cruise brand or the main cabin of an aircraft might grow more slowly than premium cabins because of that dynamic.

It's a trend we've been seeing for some time now where premium is certainly outperforming kind of a little bit more of the lower end, and it's not really something that is likely to change much in this environment. So from a cruise spend perspective, I continue to think that it's probably going to continue to show some pretty meaningful increases over the coming months and outperforming the overall data just because of the health of the higher-end consumer. And I think it's probably something we'll touch on later, but just one of the overall trends that we're seeing out there in the market is that the experience economy certainly remains alive and well.

Okay. Right. So we've talked about airlines and cruise.

Those are groups that you've been covering for many years, but more recently you broadened your coverage and now cover many areas of leisure from golf to gyms to RV companies. So what do you think are the segments with the most compelling structural drivers within those different leisure categories? Yes.

We certainly cover a lot of different consumer angles right now, and we use the BAC aggregated debit and credit card data very closely. We look at it very closely each month and we can see trends across all of our subcategories. The one thing I'm confident in saying, once again, is that experience economy is alive and well.

When we think about just over the past year, spend on cruises has been the strongest out of everything that we look at it, nearly 10% growth and has outperformed the overall card spend data, I think by about 800 basis points over the past year. After a cruise, the next most consistent categories of growth in the card data are fitness clubs and golf courses, right? They've been up four and a half and three and a half percent respectively.

So what are the themes we're seeing here? One, from the fitness clubs, health and wellness is clearly a mega trend out there. So no surprise that this is growing at a fairly healthy clip.

And then golf, maybe it fits in a little bit into the wellness trend, but I think more importantly probably that upper part of the K-shaped economy. So once again, that upper end of the K is definitely a mega trend we see, whether it's in, again, the airline premium cabins, cruise spend, golf, or higher end health and wellness companies, that just continues to stand out in pretty much all the data that we look at. Got it.

And I know that there was some weakness in ski, but I suppose the problem there is weather and the fact that you need to have started an internet company in order to be able to afford to go to some of these places to ski. We recently did a podcast on AI and the impact on labor, and our economists are not of the view that AI will usher in big job losses, but that's certainly a view that's out there. That would mean a number of different things, including more free time for people to engage in leisure activities.

But of course, you could also have more people out of work. Do you get asked about this possibility from either one of those angles? Could it be a positive for some segments in terms of there being more free time, as long as the losses aren't so big that we would wind up in a recession?

Yeah, TJ. I think that's the key. I guess, first off, we don't get asked a ton of questions on really AI and its future impact on actual leisure activity spending.

I think, if anything, leisure activities, you could be of the belief that they could suffer if people don't have jobs and can't spend on the activity. But I'd say, really, from an AI perspective, the biggest conversation we have with investors is how are these leisure and travel companies, how will they use AI to be more efficient? Airlines can use it to better communicate with consumers, anticipate delays, cancellations.

Cruise companies can do similar things. Other leisure companies can use it to maybe better market to their core customers, make their employees more efficient, better direct marketing dollars. They can improve margins and the like.

What's interesting, one of my newer companies actually spoke a lot on their recent earnings call about a new initiative that they had at the company. They actually shut down their regular operations for a week. They brought all their employees together and held sessions on just how to improve efficiency and use AI throughout the organization.

They understand that AI is going to fundamentally change how work gets done over the coming years. They really wanted their employees to be the ones driving how to use it and how it can make a real business impact. I think, from an investor standpoint, it's more on that and how leisure and travel companies are using AI to just improve their business as opposed to really any sort of focus on increased demand for leisure activities if people have more free time.

It's much more focused on the companies. Got it. And we hit on wellness a little bit, but it's interesting because if you look at results from this past quarter, one of your gym companies posted a really good result and one did not.

What's happening within gyms and how does it shape your stock views? Sure. I think this may have been the first quarter where we actually see that kind of high versus low difference shaping up within the wellness space with a company outperforming certainly a more high-priced gym membership.

But I think what we saw in terms of relative performance this past earnings season comes down to really, I think, competition. While wellness is a great theme, everyone is trying to capitalize on it. So your product needs to be marketed effectively with the right subject matter and to the right customer.

Otherwise, there are many alternatives for that health and wellness consumer to choose from. So while it's certainly a big theme out there, a rising tide, I'd say, is not lifting everyone and competition is high with a lot of winners and losers. I think that's going to be the theme going forward.

It's not the rising tide lifting everyone. It's kind of picking winners and losers within the space. So I think this quarter has been the first one that we've really seen that sort of differentiation over the past several years.

Okay. Understood. And that's probably pretty consistent if you walk across the street to my favorite grocery the amount of functional beverages and healthful beverages that you see in the case.

It's very high. So yeah, there's some competitors going after that market. All right.

Well, Andrew, thanks very much for joining us. Thanks for having me, TJ. Airline ticket prices are up about 20%, but that hasn't really slowed demand.

This could be because most people are only taking about one airline trip per year. So a 20% increase isn't a major difference maker. Plus the experience economy is alive and well, keeping demand strong.

Overall, the environment is good for airlines as there's minimal capacity growth, resilient demand and opportunities for efficiencies and costs and revenues with AI. All that said, airlines can be pretty cyclical. And if you're looking for compelling structural stories, Andrew points to cruise, fitness and golf as areas of strength.

Just keep in mind that especially when it comes to wellness, there are a lot of mouths to feed and competition in that market. Thanks for joining. Bank of America and B of A Securities are the marketing names for the global banking businesses and global markets businesses, which includes B of A Global Research of Bank of America Corporation.

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