I have been looking up air tickets for multiple upcoming trips, both for work and pleasure. I am observing that airfares are now consistently high across the year, irrespective of seasons and destinations. 5 years back, one could get relatively cheap US-India air tickets, even for the high season in Dec, if booked 6-9 months in advance. That’s no longer the case, even if one reserves as early as Feb!
Matching this with what I am seeing anecdotally in my network, demand for air travel is now significantly higher than pre-Covid. I see people taking many more vacations, going to fancier places, and generally being more willing to open their pockets for “experiences”.
Last month [Oct’23], the Transportation Security Administration logged 75.5 million passengers passing through airports in the United States — more than the 72 million who traveled in October of 2019. The TSA expects 30 million passengers to travel over the Thanksgiving holiday period alone. Globally, the International Civil Aviation Organization expects 2023’s passenger demand to outpace 2019’s by about 3 percent.
The Washington Post
Consuming with a vengeance.
I am seeing this pattern across generational cohorts where post-Covid, people have started consuming much more than before. I don’t know if “YOLO’ing” is the right way to frame this behavior shift but going through Covid experiences seems to have given people a subconscious realization that life is finite and therefore, postponing enjoyment doesn’t make sense.
This behavior shift is starting to be reflected in US consumer sentiment data. Despite high inflation and record-high interest rates, McKinsey’s Feb’24 ConsumerWise research says that consumer optimism is at its highest level in 2 years. Here are some interesting consumer quotes from this survey that highlight their buoyancy:
I am seeing similar consumption unlocks in urban India. Even in my parents’ generation, people are now taking multiple overseas vacations and spending significant amounts on general entertainment. This generation in India, like the Boomers in the US, has benefited from the massive compounding in wealth that has happened in the country since the early 90s. They have considerable wealth but more importantly, are now starting to consume a larger portion of it, instead of disproportionately saving and handing it down to the next generation.
Urban Indian Millennials and Gen Z are also turning out to be big beneficiaries of this wealth creation. They have the safety net created by their parents, plus are seeing their own incomes rise courtesy of overall economic growth. This is driving up their overall consumption too.
These shifts are reflected in the data as well. As per the recently released Household Consumption Expenditure Survey by the Govt. of India, average monthly per capita consumer spending has grown ~2.5x between 2011-12 and 2022-23, both in rural (INR 1,430 ➡ INR 3,773) and urban India (INR 2,630 ➡ INR 6,459). Interestingly, Indians are spending less on food and more on discretionary items like consumer durables, services, and travel.
Remote work, gig economy, and digital nomads.
Another trend that has a major impact on global consumption is the rise of remote/hybrid work as well as the gig economy.
A decade back, people had to work a standard 9-to-5 job that required showing up in the office 5 days a week. Now, I see Gen Z actively adopting a gig economy mindset to make space for other activities in their lives. My cohort, the Millennials, are actively using the ability to work remotely to take more weekend trips and even work from new cities for extended periods.
All these life choices are geared towards more consumption. Lines between business and pleasure travel have blurred, leading to the creation of a new category of travel called “bleisure”. Companies like Airbnb and destinations like Bali are beneficiaries of this shift.
Less kids, more spend!
There is another macro trend globally that I feel is a leading signal of even more discretionary consumption in the coming decade – declining birth rates! China’s population fell for a second consecutive year in 2023. The US has been seeing a long-term decline in birth rates for a decade and a half now. See what Brookings has to say:
Before the pandemic [in the US], births had been steadily declining for many years. There were almost 600,000 fewer annual births in 2019 relative to 2007—a 13% reduction. The size of the COVID-related baby bust and subsequent rebound were meaningful in that context, but they also represent short-term deviations from an ongoing trend of considerably greater importance. Birth counts in 2022 are still below what they were in 2019.
The Brookings Institution
This isn’t limited to just the US or China. Anecdotally in urban India, I am seeing couples choosing to have fewer kids or no kids at all! In my parents’ generation back in the day, each household had 4-6 kids. In my generation in the 80s and 90s, this came down to 2 kids. Now, at least in the Metros, I am seeing this number at 0-1 kids, with DINK (double income no kids) couples being very common at least in my circles. Like how things have unfolded in China, birth rates could start declining even in Tier 2 Indian cities and beyond over the next 20 years.
People forego immediate consumption and save money primarily for 2 things – (1) retirement and (2) handing it down to the kids. Common sense tells me that in the US and India, (a) if the economy continues to grow (so per capita incomes keep rising), (b) inflation is under control, and (c) people have fewer kids, this is a recipe for more wealth and less propensity to save, thus driving up discretionary spends on things like travel and entertainment.
This gravy train should continue until falling birth rates start impacting the quantum of productive population* and therefore, economic growth (like perhaps what’s unfolding in China today). But till that happens, it’s a consumption boom baby!!
*The US is well-positioned to mitigate this risk by opening its immigration faucet to ensure an adequate working-age population.
Implications of YOLO? Higher demand, stickier inflation, generational impact.
YOLO as a persistent global behavior shift implies that one should expect sustained high levels of consumer demand across growing economies like the US and India. This further implies inflation will be stickier for longer than what one might be expecting, especially in discretionary areas where pricing isn’t influenced by the govt. (eg. air travel, hotels, dining, electronics, furniture etc.). It also means consumer demand will keep driving the economic growth engine in these economies, in turn providing tailwinds to stocks of companies that benefit from this consumption.
While YOLO’ing is largely used in frivolous contexts and has become a meme word, it actually describes a powerful behavior shift. And given Covid was a global phenomenon, this shift has happened across multiple economies.
These behavioral shifts, often with underlying milestone events like wars, pandemics, and technology inflections, tend to have ripple effects across generations. The cohort who survived and emerged victorious from WW I came back to consume and enjoy life like there is no tomorrow, driving the Roaring 20s. The cohort scarred by the Great Depression built a deep mistrust for the stock market, a majority of them never investing in it again.
The Silent Generation won WW II and again, came back to bask in that glory, consuming with abandon, building businesses, and making babies. The Boomers grew up in these glorious decades of America, with post-war technology advancements permeating every aspect of their lives.
The peak years of Millennials like myself have been spent in a world that is disproportionately driven by technology inflections: PC ➡ Internet ➡ Mobile ➡ Cloud ➡ now AI. These years have embedded events like the Dotcom crash’01, GFC’08, and Covid in 2020.
Whether or not we choose to ignore them, these events change the mindset of a whole generation, thus impacting our futures in more ways than one, from our jobs and real estate prices to how our stock portfolios perform and the cost of vacations.
While as a disciple of Munger, Buffet, and Howard Marks, I hesitate to believe in anyone’s ability to create macro projections, I do believe that it’s worthwhile to study shifts in human behavior and what long-term themes could emerge from them. While they might not impact micro-decisions, these themes can help us have an appropriate weighting between offense and defense in our overall portfolio of life choices.
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