Travel Holds Up as Inflation Pushes Shoppers to Trade Down

Bank of America Institute card data shows travel is the outlier category in a consumer economy otherwise trading down at the fastest rate since 2021. While apparel and dining spending shifts toward value-tier merchants, the bank's travel spending tier composite has moved upward — a signal sellers of travel should read carefully, and skeptically.

The institute built its composite from consumer spending across four categories — apparel, dining, grocery and travel — plus the median incomes of shoppers at premium, standard and value stores. The composite has trended downward for several years, reflecting the most trading down since 2021. More households are shifting spending to value-tier merchants rather than premium establishments, the report said.

"Consumers are still spending, and they're adapting to inflation, but adapting is not the same thing as escaping it," Taylor Bowley, an economist at the Bank of America Institute, told Business Insider. "They're still finding ways to stretch their budgets by trading down where they have those choices."

Why does travel look different from apparel and dining?

Airline spending growth looks robust in card data, but Bowley said the strength is largely price-driven — fares are up while transactions dip. That distinction matters for anyone reading airline revenue as proof of demand.

The report flags renewed strength in hotel spending growth and "robust cruise spending — the latter often a budget-friendly way to travel." But the bank itself offers a caveat: the upward shift in travel's tier metric may simply reflect lower-budget travelers dropping out of the market entirely rather than becoming less price-conscious, given declining airline transaction growth in recent months. In plain terms, the up-tier shift could be survivorship, not splurging.

Which generations are pulling back?

Millennials are trading down hardest, according to the report — likely the demands of early middle age. Many are parents paying childcare costs on top of everything else, and Bowley noted this generation also faces elevated housing and auto payments.

Gen Z has consistently scored lower on the composite, which the report attributes to lower incomes and fewer accumulated assets. Baby boomers hold the highest composite, well clear of a pandemic-era dip. "They do seem to have a pretty steady way of how they're going about shopping," Bowley said of older consumers.

How bad is the affordability squeeze?

Context explains the pressure. Gas prices have surged since the start of the Iran war, mortgage rates have spiked since the start of the year, and the Fed hiked rates in September before holding steady in October while awaiting more data.

The University of Michigan's consumer surveys tell the same story. "About 57% spontaneously mentioned that their living standards have been eroded by high prices, the highest seen since May and up from 46% in February, just prior to the Iran conflict," survey director Joanne Hsu said in the latest release.

What are retail CEOs seeing?

Recent earnings calls echo the data. Scott McPherson, CEO of Performance Food Group, said "consumers remain value-conscious and selective with discretionary spending," citing average gas prices around $4 as added household pressure. Ryan Grimsland, CEO of Advance Auto Parts, said hard parts categories remain soft as value-conscious consumers defer big repairs.

Even wealthier shoppers are hunting deals. "Lower-income customers are prioritizing needs over wants, shopping closer to need, and in many cases delaying discretionary purchases where they can, while higher income customers continue to trade down in search of value," Eric van der Valk, CEO of Ollie's, said on the company's call.

Wage growth remains positive, which Bowley said absorbs some of the price increases — but only so far, especially on housing. For travel sellers, the message is mixed: hotel and cruise revenue are holding, yet fewer airline transactions suggest the value hunters may simply be staying home.