Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why Your Hotel Room Costs More But Your Flight Doesn't
Transcript
- Lucas: If you've tried to book a hotel this summer, you've probably noticed something: the nightly rate stings. But if you bought a plane ticket to get there, the price may have actually felt reasonable—maybe even cheap compared to last year. Luna: Yeah, I booked a weekend in Chicago last month and the flight was under two hundred round trip, but the hotel? Three hundred a night for something mid-range. Lucas: That gap is real. The June CPI out a few weeks ago shows airfares down six point two percent from a year ago, while lodging away from home—hotels, motels, that category—is up four point eight percent. Luna: So the same trip has one part deflating and another part inflating. What's driving the split? Lucas: If walking through the economy with us has made something click—like why your hotel costs more but your flight doesn't—that's the kind of clarity listeners tell us they value. And the way these episodes stay ad-free is through listener support. It's buy me a coffee dot com slash fexingo. Genuinely helps us keep doing this. Luna: Yeah, we love putting these pieces together. Appreciate anyone who chips in. Lucas: So the airfare story is mostly about capacity. Airlines added a ton of seats back over the past eighteen months, especially on domestic routes. Remember the revenge travel surge in '22 and '23? Airlines overcorrected, and now we've got more planes in the air than demand can soak up at peak prices. Luna: So basic supply and demand—more seats, lower fares. Lucas: Exactly. And jet fuel has come down from its spike, so airlines have some room to compete on price. The CPI data shows airfares peaked in May of '24 and have been on a downward trend since. Luna: But hotels—why aren't they doing the same? Is it also supply? Lucas: It is, but in the opposite direction. During the pandemic, a lot of hotels closed permanently or were converted into other uses—affordable housing, homeless shelters, even office space in some cases. So the total room supply in many markets is actually lower than it was in 2019. Luna: And demand hasn't dropped. If anything, it's still elevated. People are traveling, attending conferences, weddings, all of it. Lucas: Right. The Fed's latest Beige Book, which came out last week, noted that leisure and hospitality demand remained solid, though some contacts flagged that consumers are becoming more price-sensitive. But hotel operators are still able to push rates because there simply aren't enough rooms in popular destinations. Luna: So it's not that hotels are greedy—it's that there's a structural shortage. Lucas: Partly structural, partly about the mix. A lot of the new hotel construction in the past few years has been at the high end—luxury and upper-upscale—because that's where the returns are. So the supply that has come back is expensive, pulling the average rate up. Luna: Which means if you're looking for a budget motel or a mid-range chain, you're fighting over a shrinking pool of rooms. Lucas: Exactly. And the CPI's lodging category also includes things like vacation rentals. Airbnb and Vrbo listings have grown, but their average daily rates haven't come down much either, because demand is still strong. The June data had the whole category up almost five percent year-over-year. Luna: What about business travel? That used to prop up hotel demand midweek, but it's still below pre-pandemic levels. Lucas: It is, but leisure travel has more than filled the gap. And there's a secondary effect: because business travel is down, hotels have less incentive to offer discounted weekend rates. They used to lower prices Friday through Sunday to attract leisure travelers. Now, with leisure demand so high, they just keep rates elevated all week. Luna: So the old strategy of 'fly out Thursday night to save on the hotel' doesn't work anymore. Lucas: Not really. Unless you're going to a secondary market that never fully recovered. But for major cities and resort areas, the dynamic is pretty uniform. Luna: Is there any sign of hotel prices coming down soon? Lucas: Some analysts think we might see a peak later this year. The headwind is that new hotel construction is expensive and slow—labor shortages, high material costs, financing is tight with rates where they are. So new supply isn't coming online fast. The National Association of Realtors put out a report in May showing hotel construction starts were still down about fifteen percent from 2019. Luna: So the price pressure could persist for another year or two. Lucas: Probably. Unless demand softens noticeably. And there are early warning signs. Consumer sentiment has been shaky—the Michigan survey for July showed a slight dip. And the Fed's Beige Book mentioned that retailers and some travel-related businesses are seeing customers trade down or delay purchases. Luna: So the airfare drop might be a preview of what happens to hotels if the economy slows. Lucas: It could be. Airlines are more competitive and more transparent on price—you can see every fare instantly. Hotels have more opaque pricing, with fees and dynamic rates, so they might resist cutting prices longer. But if occupancy starts to slip, you'll see deals. Luna: What about international? I've heard flights to Europe are still expensive. Lucas: That's a different story. International airfare hasn't come down as much because capacity hasn't fully recovered—especially to Asia. And there are geopolitical factors, like the Hormuz situation we've been hearing about, that can affect fuel costs and routing. But even there, prices are off their peaks. Luna: So the takeaway for someone planning a trip later this year: book the flight now, wait on the hotel? Lucas: Roughly, yes. You might see hotel rates dip slightly in the fall shoulder season, but don't expect bargains. And if you can be flexible on destination—go where supply is looser—you'll save more. Places like Phoenix or Atlanta have more hotel supply than, say, Nashville or Charleston. Luna: It's interesting how two parts of the same trip can be in such different inflation cycles. Lucas: That's the thing about CPI—it's an average. The headline number was down in June, but the experience depends entirely on what you're buying. If you're a heavy hotel user, your inflation rate is higher than the person who's mostly buying plane tickets. Luna: And that's why the cost of living conversation is so personal. The average doesn't live anywhere. Lucas: Exactly. So next time you see a CPI headline, think about your own basket. It's probably not the same as the government's. And that's where the real insight lives.