Few organizations are better positioned to offer deep intelligence into the economic landscape than Mastercard. Leveraging the 160 million transactions streaming across its network every hour and supplementing that data with those from partners and public datasets, Mastercard’s market insights can help executives make more informed decisions for their organizations. In this rapid-fire session, Mastercard’s senior vice president of market insights, Sarah Quinlan, provided attendees with a unique view into the state of the U.S. economy and how it will shape travel in the near future.
Quinlan opened her presentation with similar talking points to most since September 15, 2008, the morning after the collapse of Lehman Brothers: Recovery from the global financial crisis and the new economic order. Quinlan noted that what made this particular recovery unique was that it was largely driven by the consumer and, while the U.S. economy remains the world’s strongest and one that continues to grow, Quinlan emphasized that both business and government will need to enhance their own participation in order for that growth to continue in the long term.
Of real interest for travel industry attendees, Quinlan highlighted that current growth is being led by services—another differentiator for this recovery from those after previous recessions. “This isn’t the death of retail,” she noted, “but the death of ‘stuff.’” According to Quinlan, total retail sales account for about 70 percent of growth in the U.S., and are largely being driven by spending on experiences, indicating a shift in U.S. consumer values. This should be encouraging for organizations in the travel sector, she noted.
Further bolstering the economy are the U.S. job market and shifts in behavior by Baby Boomers. At 4.9 percent unemployment, the U.S. job market is essentially full; wages are going up; and gas prices are once again on the decline (which, Quinlan noted, can be considered a “wage increase” for most Americans). Millennials (who, contrary to popular perception, spend similarly to previous generations) finally have buying power, and Baby Boomer parents are now spending more money on their adult children than previous generations, no longer waiting to transfer wealth after death, but while both they and their children can enjoy the fruits of their labor.
Interestingly, 37 percent of spending in the U.S. is done in small businesses (organizations with less than $50 million in annual revenue) and, according to Quinlan, this demonstrates two things:
Quinlan believes that this will drive companies to become more focused on customer segmentation, and that it will be critical for executives to not only understand customer behavior within their own businesses, but also understand their customers’ spending habits with other vendors.
These trends should all be very encouraging for the travel industry, which is already seeing the rewards from this transformed consumer behavior and increased spending power.
Based on Mastercard’s analysis, airlines have been in the top three categories of sector performance for the last two years. Airline tickets represented the top Christmas gift in 2016, followed secondly by hotels, with restaurants ranking fifth. Consumers are voting with their dollars, and they are voting for experiences—often experiences with others.
According to Quinlan, shopping is social, and that includes travel. What this means for travel brands is that selling isn’t just a one-to-one relationship. It’s a one-to-many relationship, where influencers play an equally critical role in the buying decision-making process (for example, Baby Boomers who are purchasing a trip for their Millennial children).
Quinlan also encouraged attendees to think about the base role of travel: Getting people from where they are to where they want to be. People no longer live where they grew up. Rather, they live where the jobs are, and this new reality should be top of mind when thinking about new routes and new hotels. For example, according to Mastercard’s data, Tacoma, WA; Dallas, TX; Fort Worth, TX; Seattle, WA; West Palm Beach, FL; Fort Lauderdale, FL; Oakland, CA; and Washington, D.C. are the fastest-growing population centers for Millennials. These are different cities from where those Millennials were born and raised. They are not the same markets as their parents.
Understanding trends and market insights like these, says Quinlan, can be a competitive advantage for travel brands. For example, she noted that only 40 percent of Americans have a passport, meaning most travel remains domestic. While this goes a long way to support the domestic economy (spending stays in the U.S.), it’s even more important for U.S. travel brands to align their strategies with this reality to win the day.
Furthermore, marketing should align with not just where people want to go, but when they are making the buying decision. Large-ticket experience spending (e.g., travel) is often booked months in advance, so purchasing decisions made in September are often for the Thanksgiving holiday. Likewise, Christmastime travel is often decided in October.
One of the biggest trends in the post-recession environment, Quinlan noted, is that home ownership rates have not returned—and will likely never return—to pre-recession levels. Consumers no longer equate home ownership with wealth. They are living in smaller spaces and no longer aspiring toward the “white picket fence.” Once again, this trend is a positive one for the travel industry: With lower housing costs, consumers’ second wallet is increasingly large.
But it’s not just the travel itself that’s reaping the rewards of increasing buying power. Restaurant spending now represents 52 percent of overall food spending (48 percent grocery), with Baby Boomers leading overall dining-out growth and limited service dining options as the largest beneficiaries of this trend. Quinlan made the point that travel brands should look to potential dining partnerships as supplemental revenue streams.
The key point Quinlan wanted attendees to take away from this session was that the consumer has changed. People are no longer buying the physical items of the past, but have shifted their value to experiences. While travel used to be considered discretionary spending, that’s no longer the case. It will be critical for travel companies to curate their brands, curate their customers’ experiences and segment the consumer—and particularly place a focus on the middle class, an aspirational market segment that is increasingly “doing better.”
Quinlan closed with a use case for attendees to take home: Over the past 12 months, there were 17.6 million automobile sales in the United States, the most ever. What this means is that employees at plants in places like Huntsville, AL and Greensboro, NC, will see bigger bonuses come February and March 2018—bonuses that go directly into their second wallets—and it’s these consumers that travel brands should be targeting.
The questions executives need to ask themselves and their employees are: