The End Of Budget Tourism

0:00 After declaring bankruptcy in 2024 and then again in 2025,

0:04 2026 finally finished things off as Spirit

0:07 Airlines shut down entirely about 3 weeks ago.

0:09 Now following their failure to secure a lastminute government bailout.

0:13 Now this particular business closure wasn't exactly shocking

0:16 to anybody that had actually been following the company.

0:19 But the end of this otherwise unremarkable

0:21 lowcost carrier might be both the indication

0:24 of and the cause of a wider reversal across the entire travel industry.

0:29 The last three decades in particular have been

0:31 the golden age of budget tourism with most significant

0:34 travel related expenses like airfares and accommodation lagging behind

0:38 overall inflation to become significantly cheaper in real terms.

0:41 For a lot of people,

0:42 this was a very real lifestyle reprieve

0:44 to offset a lot of other financial challenges.

0:47 Sure, they may never be able to afford a home,

0:49 and their career may be increasingly precarious compared to their parents,

0:53 but even a basic income potentially mixed

0:56 in with a little bit of new age consumer debt could

0:58 let people see the world in a way that was

1:00 genuinely reserved for the jetet just a generation before.

1:04 According to the booking company going,

1:05 this time last year was the second cheapest month on record for airfares,

1:10 which they noted in the report was unlikely

1:12 to change unless there were any major shocks in 2026.

1:16 So, um, yeah.

1:18 Anyway, the reality today is there are several

1:21 headwinds that are all pushing back against the trend

1:23 of budget friendly travel and increased fuel costs

1:26 are just one small part of the puzzle.

1:28 The closure of Spirit may be equally the result

1:31 of their own poor practices mixed in with unfavorable market conditions.

1:35 But no matter where the finger is eventually

1:37 pointed without their lowcost seats in the market,

1:39 regular airlines have much less pressure to be competitive on their prices,

1:44 which is a dynamic playing out in far

1:46 more places than just this one specific example.

1:49 Travel related expenses are up by 20% year-over-year.

1:52 And this was already happening before we

1:55 started making a uh distraction in Iran.

2:00 Drivers nationwide [music] are fretting over increasing gas prices.

2:03 And now airlines say they are feeling the pinch.

2:05 Delta CEO said that jet fuel prices have increased

2:08 dramatically [music] since the war in Iran broke out.

2:11 More hotels are charging $1,000 [music] or more a night.

2:15 Daniel Jacobs with True Loan Mortgage saying while inflation is on the decline.

2:19 Hotels and Airbnb prices are skyrocketing.

2:22 The shutdown was abrupt to [music] many passengers,

2:24 but this was really years in the making.

2:26 Spirit was in bankruptcy.

2:27 It had filed for bankruptcy twice within one year.

2:31 Okay, so travel has been getting more expensive across the board

2:34 and the easy explanation is that well

2:36 everything is getting more expensive in 2026.

2:39 Now fuel prices are something that is clearly worth addressing.

2:42 But even before the conflict in Iran,

2:44 travel related costs were already increasing

2:47 and they were increasing faster than overall inflation after an otherwise long

2:51 period of pretty consistently getting more affordable.

2:53 Now, even though it would probably make for a much more compelling video,

2:57 there is not a single silver bullet that explains why this has been happening.

3:01 Instead, there are a few headwinds that all

3:03 need to be considered independently and collectively.

3:05 And then, of course, they will make a lot more sense when

3:08 we sprinkle the oil prices back into the equation.

3:11 Okay, so the first big factor is that the travel

3:13 industry has been stratifying itself for a long time now.

3:17 But the last few years in particular have taken it to such

3:19 an extreme that it is having a meaningful impact on budget travelers.

3:23 The most obvious example of this is what happened to airline cabins.

3:27 The standard for most of the last

3:29 30 years has been economy for budgetconscious tourists,

3:32 business for well mostly business people who didn't need

3:36 to pay out of their own dime and whose

3:38 companies were happy to pay for them to arrive

3:40 at a destination more ready to get work done.

3:42 And ultimately some airlines that offered first for very wealthy travelers who

3:46 wanted a luxurious experience above and beyond just the comfort of business.

3:50 With just a pinch of dynamic pricing and good old hidden fees,

3:54 this model captured an overwhelming share of the market and aviation spend.

3:58 Today, the average international flight has something closer

4:01 to six individual classes you can choose from.

4:04 budget airlines, regular economy, premium economy, business class, first class,

4:08 high-end first class suites like those offered by Singapore or Cutter Airlines,

4:12 and then increasingly the private jet market sitting

4:14 on top of all of that through services like NetJets,

4:17 Vista Jet, and uh Linus' creative accounting.

4:21 In just a perfect encapsulation of this issue,

4:23 private jet charter companies have been struggling to keep up

4:25 with demand at the same time as budget airlines are closing down.

4:29 The same thing is happening across hotels, cruises, restaurants,

4:32 and basically every travel experience that can be sliced into a class system.

4:36 Cruise ships are potentially an even more extreme version of this.

4:40 Cruises were initially pitched as one of the most cost-effective ways

4:43 to take a vacation because the food and the cabin were all inclusive.

4:47 So, your total spend was basically locked in from the moment you booked.

4:50 Today, the fastest growing segment of the cruise market is ultra

4:54 premium yachts co-branded with high-end hotels

4:56 like Four Seasons, Ritz Carlton, St.

4:58 Regis and Aman with cabins that can run up

5:01 to a quarter of a million dollars per week.

5:04 Investment into this end of the market has been enormous,

5:07 largely driven by private equity firms who have

5:10 clocked which way the K-shaped economy has been bending.

5:13 Now, I think it's probably worth mentioning that this does

5:15 not mean that they are immune from their own initification.

5:18 Some of the initial reviews of these ultra

5:20 high-end cruise ships have been hilariously bad.

5:24 Left some uh toenail on the floor.

5:28 I definitely did not clip my toenails since I've been in this room.

5:32 So, the only assumption is that's someone else's.

5:35 Anyway, all of this by itself shouldn't

5:37 really be a problem for budget travelers.

5:39 If the top half of the K wants to spend more

5:42 on increasingly ridiculous accommodations while most

5:45 people enjoy budget prices for budget service, well, let them eat molded cake.

5:50 If anything, the rise of budget airlines has been one

5:53 of the great consumer wins of the last 30 years.

5:55 An aggressive lowcost competition has dragged

5:58 regular economy prices down with it.

6:00 The problem is that the low end of this market is now under enormous pressure.

6:05 And as those budget options dry up,

6:07 the dynamics of the whole market start to change.

6:10 The clearest example of this is Spirit.

6:12 With Spirit gone from the market,

6:14 regular airlines that used to compete with their fairs on the same

6:16 routes suddenly have much less pressure to keep their own prices low.

6:20 They don't even have to do anything sinister to take advantage of this.

6:24 They just simply don't have to discount as aggressively as they used to.

6:27 On the other end, major carriers are also figuring out that they

6:30 can make a lot more money per square foot of cabin

6:33 by ripping out rows of economy seats and replacing them with premium

6:36 economy or business class seats with relative

6:38 confidence they will be filled consistently.

6:40 Lufthansza has been openly bragging that premium

6:43 economy generates around 33% more revenue

6:45 per square foot than regular economy and about 6% more than full business class.

6:51 For a business just trying to maximize revenue,

6:53 why sell 10 economy seats to budget travelers

6:56 when you could sell four premium economy seats

6:58 for more money to people whose portfolios have

7:00 done very well over the last few years?

7:03 The demand for those premium seats is genuinely there.

7:05 So, they would be kind of dumb not to displace the budget travelers.

7:09 Oh, and even airlines that do want to add

7:12 more economy capacity kind of can't right now.

7:15 The aircraft production pipeline is a complete mess.

7:18 As of April 2026, Boeing and Airbus are

7:21 sitting on a combined backlog of more than 12,000

7:24 narrowbody planes with Airbus' backlog alone representing roughly

7:28 10 years of production at current delivery [music] rates.

7:30 Engine supply has become the binding constraint

7:33 on the entire global narrow body market.

7:35 [music] with leap engines from CFM International which power both the A320 Neo

7:39 and the 737 Max effectively setting the upper limit on how many new planes

7:44 anyone can put in the air [music] which means even if a lowcost

7:47 carrier wanted to step into Spirit's empty

7:49 routes tomorrow with brand new fuel efficient

7:51 planes those planes are not available possibly for years all of this to say

7:56 that just as something like Spirit Airlines dragged down costs on the routes

8:00 they flew from the budget end of the market the draw of premium

8:03 seats is pulling prices up as more space gets allocated to higher revenue seats.

8:08 So when Spirit exited the market,

8:10 the only remaining forces are all in one direction.

8:13 Now to be fair, a lot of former Spirit planes

8:15 will be de yellowed and released out there to other airlines,

8:18 but those are unlikely to be focused on the bottom end of the market.

8:22 With such constrained supply, the existing fleet gets allocated to whichever

8:26 routes and cabin configurations maximize revenue,

8:28 and right now that is just serving

8:30 the creamiest markets of premium economy and business class.

8:34 It's not great, but this alone is far from the biggest

8:37 reason why your next vacation may be in the metaverse.

8:40 [music] So, it's time to learn how money works to find

8:42 out if the golden age of cheap travel really is over.

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10:02 Okay, the second major factor is what Airbnb has

10:04 done to the accommodation market when you actually arrive.

10:08 When Airbnb first showed up about 15 years ago, it was sold as a lowcost,

10:12 no frills alternative to a hotel,

10:14 often with the host actually living in the property alongside the guests.

10:17 Of course, over time,

10:18 it too became premium focused with most properties being rented out

10:22 without the host actually cohabitating or really even being present at all.

10:27 Landlords figured out that displacing their tenants to convert their properties

10:30 into pseudo hotels gave them a slightly higher rental yield,

10:34 and that's all they really needed to know.

10:36 Now eventually cities started cracking down

10:38 on this as housing and tourist hotspots

10:40 became catastrophically unaffordable for the people

10:43 who would actually be supporting the tourists.

10:45 And as this happened, Airbnb itself started leaning into quality listings.

10:50 So the cheap end of the platform basically evaporated.

10:53 Airbnb's own Q4 2025 results show they removed 550,000

10:58 low-quality listings between 2023 and the end of 2025

11:02 and that listings flagged as guest favorites now accounted

11:05 for nearly half of all bookings on the platform.

11:08 What that means is that the accommodations

11:10 that survived this cleanup were largely already operating

11:12 like hotels while everything else got pressured

11:14 to either move upscale or go out of business.

11:17 Now, we covered the Airbnb bust on this channel a couple of years ago,

11:21 but what we didn't mention was the impact that this platform had on host,

11:25 which used to be the bedrock of really affordable international travel.

11:29 During the golden years, where VC subsidized just about everything,

11:32 a lot of backpackers opted to split a whole Airbnb between

11:35 a group of friends over sharing a hostile dorm with strangers.

11:39 And then co pretty much finished off whatever demand was

11:41 left for this kind of cheap and cheerful shared accommodation.

11:45 The cumulative result is that the budget end

11:47 of the global accommodation market has basically been hollowed out.

11:50 New York is probably the cleanest case study of this.

11:53 NYC enforced local law 18 in 2023 to crack down on short-term rentals,

11:58 and the results have been kind of remarkable.

12:01 Airbnb listings citywide dropped from around

12:03 38,500 to roughly 5,000, a 92% decline.

12:08 Outer Burough listings, Brooklyn, Queens,

12:10 and the Bronx dropped from around 17,000 to about 1,400 over the same window.

12:16 The 12-month average nightly rate for a hotel room

12:18 in New York City has hit a record $320,

12:22 with hotel prices in the city up 12.6% over the last 2 years,

12:26 which is more than triple the national rate of hotel price increases.

12:30 Now, hopefully it should go without saying

12:31 that the need for people to be able to afford

12:33 to live in their own city should outweigh

12:35 the need for tourists to enjoy a cheap hotel room.

12:38 But unfortunately, the damage was largely already done.

12:41 And none of this made New York more livable to live in.

12:45 What did change was who got to visit the city.

12:48 The neighborhoods that used to host the cheaper Airbnb capacity,

12:51 places like Crown Heights, Atoria, and the South Bronx,

12:54 reportedly saw drops of up to 70% in foot traffic,

12:57 which has hit the local restaurants

12:58 and small businesses that depend on tourist spending.

13:01 So that crackdown effectively just routed

13:04 budget travelers out of the city entirely,

13:06 while higher spenders who could afford a Manhattan hotel kept coming.

13:09 And while New York is the most extreme example,

13:12 the same logic is playing out at the city level

13:14 across most of the major tourist destinations in Europe, too.

13:18 Venice now charges day visitors between 5 and€10 to enter the city on peak days,

13:22 with the higher rate kicking in if you book closer to the date.

13:25 Over 720,000 day visitors paid the fee between April and July 2025 alone.

13:31 Barcelona has bumped its tourist tax to €4 a night

13:35 and the total nightly tax on a higherend hotel can

13:37 approach €15 once city and regional fees stack up

13:41 and Amsterdam is capping cruise traffic to 100 ships in 2026,

13:46 down from €190 before banning them outright by 2035.

13:51 Now, individually, none of these fees are

13:53 devastating even to the most budgetconscious backpacker,

13:56 but they do raise the bar in such a way

13:58 that they can have knock-on impacts across an entire city.

14:01 If you are visiting Venice for the day

14:03 with a backpack full of borrowed condiments for sustenance,

14:06 a couple extra euros a day is a consideration.

14:08 Hypothetically, of course, I've never done this.

14:11 But anyway, if you are spending three nights in the Aman,

14:14 the fee is a rounding error.

14:16 This gradually means that fewer budget and more

14:19 high-end travelers will accumulate in these centers,

14:22 which means hotels and restaurants will

14:23 naturally start accommodating to higher-end clientele,

14:26 which gradually just makes the entire city a more expensive destination.

14:31 Now, to play devil's advocate a bit here,

14:33 to a lot of city centers that have been somewhat overrun by revenge travelers,

14:37 this is kind of the [music] point.

14:39 One wealthy couple who spends 30 grand on a week

14:41 in the city is providing just as much

14:43 economic value as a thousand backpackers spending 30 bucks

14:46 each while creating far less disturbance to the locals.

14:50 Then of course the third factor is the one

14:52 that gets most of the headlines and that is oil.

14:56 Yeah.

14:56 Okay.

14:57 This one is fairly obvious so I will just get to the point.

15:01 Jet fuel prices have roughly doubled since the start of the war in Iran

15:05 with North American jet fuel up around 95%

15:08 from about $2.50 a gallon to around $4.56.

15:12 The International Energy Agency has actually

15:15 called the disruption through the Strait

15:16 of Hermuz the largest supply disruption in the history of the global oil market.

15:21 The relevant thing for our purposes is how those costs get distributed.

15:25 The marginal cost of fuel in a $10,000

15:27 business class seat might be an extra $500.

15:31 Not nothing, but the kind of customer paying 10 grand

15:33 for a flatbed is not going to notice the difference.

15:36 A $700 budget airline ticket getting hit with a $100

15:40 fuel search charge is statistically a much bigger deal.

15:43 And the carriers are pretty open about this.

15:46 Spirit literally cited jet fuel doubling in 2 months as a major

15:49 reason why they couldn't make their March restructuring plan work.

15:52 And they pointed to fuel cost explicitly

15:54 when they shut down operations earlier this month.

15:57 So you can see how the oil shock just

15:59 gets layered on top of the existing premiumization problem.

16:02 Premium airlines and premium routes can absorb a fuel spike

16:06 where thin margin budget carriers on already cheap routes just can't.

16:10 The fourth and final headwind doesn't get

16:13 talked about much in the travel context, but it does a lot of the heavy lifting,

16:17 and that is what is happening to the US dollar.

16:20 For most of the last decade, Americans have been able to lean on a strong

16:23 dollar to get genuinely cheap overseas vacations.

16:26 That was especially true in places like Japan,

16:28 where a weakening yen meant an American

16:30 on a basic salary could spend a week living large,

16:33 effectively subsidized by the petro dollar.

16:36 The problem is that when you flood

16:37 a destination with relatively wealthy dollar tourists,

16:40 hotels and airlines slowly adjust their prices

16:42 upwards to capture all that demand.

16:44 A Tokyo hotel in 2026 is not the same bargain it was in 2022.

16:50 And now the dynamic is going the other way.

16:52 The US dollar index has been trading around 97 to 99 through May 2026,

16:57 well off its record peaks.

16:59 And Cambridge Currencies is currently forecasting it to drift down

17:02 towards 90 to 96 by the back end of the year.

17:05 The Federal Reserve's own research on exchange rate

17:07 elasticities of international tourism makes this pretty intuitive.

17:11 When the dollar weakens,

17:12 American outbound travel just gets more expensive in real terms,

17:15 even when the local currency prices on the destination haven't moved at all.

17:20 And once again, this hits different parts of the market very differently.

17:24 People earning a salary can simply afford

17:26 less vacation for the same dollar amount,

17:28 even if the foreign prices haven't moved.

17:31 And anyone who needs to top up their trip with a personal loan is

17:34 doing so at an interest rate pretty much double what they were 4 years ago.

17:38 People who are already wealthier in asset terms,

17:40 like stock portfolios and property,

17:42 have largely had any dollar weakness offset by their asset gains.

17:45 and the strong stock market has actually made

17:47 them more comfortable spending on travel, not less.

17:50 Now, I just want to quickly mention

17:52 that a smaller channel by the name of Analyzing

17:54 Finance with Nick actually made a great video on this dynamic a few weeks ago.

17:58 He is very straight to the point, but he has done a lot of good deep

18:01 dives on different topics and is definitely worth checking out.

18:05 Now, in real terms, travel is still cheaper than it was 20 years ago.

18:08 And again, just for a bit of perspective,

18:11 June 2025 was the second cheapest month for airfares on record.

18:14 But there is no hard and fast rule that says this has to remain true.

18:18 And for what it's worth,

18:19 cheap travel was kind of the one consolation prize for a generation that mostly

18:23 missed out on the other big consumer wins of the last 50 years.

18:27 They might not have got the same shot at home ownership their parents did.

18:31 Their careers are more precurious.

18:33 Their student debt is heavier in real terms.

18:35 and they have lived through three major recessions.

18:37 But the one consolation prize they did get,

18:40 being able to fly anywhere for cheap, is now potentially also drying up.

18:45 But from the market's point of view, this is all working exactly as intended.

18:49 And if you want further proof of that, go and watch

18:51 this video next to find out how the future became someone else's problem.

18:55 And don't forget to like and subscribe to keep on learning how money works.