Figuring out which services millennials will pay extra for, and which they won’t, is the key to the puzzle.
Last month we released our latest report in the Skift Trends series, Portrait of the Millennial Traveler 2016: A Study in Contradictions.
Below is an extract. Get the full report here to get ahead of this trend.
Travel brands catering to millennials have also been quick to assume this generation is cash-strapped, designing products and experiences with this purchase behavior in mind.
As it turns out, the assumption about this generation’s lower incomes leading to lower travel spending doesn’t hold up. Consistent with millennials’ prioritization of experiences over other purchases, their travel spending often outpaces spending on other items. “They’ve spent the second-most on vacations in the last 12 months among the four generational categories, and they’re looking to spend the second-most among the four categories in the next 12 months,” said Steve Cohen, VP of insights at MMGY in a 2014 interview with Hotel News Now.
In fact, according to other executives, many millennials are more than happy to spend larger-than normal sums on trips, it just has to be for the right types of purchases, like experiences. “They may not spend a lot on a car or live in a really cheap apartment. They don’t eat out a whole lot,” said Sharalyn Orr, Executive Director of Frank N. Magid Associates, a consumer research firm. “They’re saving because they’d rather go to concerts, or would rather travel whenever they can.”
One example of how this selective spending mindset plays out comes from Priority Pass, a global lounge access provider, who released research in 2014 around a subset of millennial travelers the company calls “conspicuous consumers,” referring to those between the ages of 26-35 who outspent older travelers on luxuries like four-star and five-star hotels by wide margins.
While not every millennial is making luxury purchases while on the road, travel industry executives suggest there is a hierarchy in terms of what millennials think is important to buy while traveling. “People are spending their money in a curated way that actually sends a message about themselves and their own brand,” said Josh Wyatt of Generator Hostels. “Individuals spend the same amount of money (for example 100 euros) but that 100 euros is going to be spent in a way that I think is very curated.”
Consider how this plays out with millennial meal habits on the road. “It’s not a question of saying, ‘I’m going to get the cheapest possible thing, or the most amount of food for the cheapest amount possible,’” said Wyatt. “‘[Instead] I want to go have a really cool eating experience, but maybe I’m only going to have one really good meal out of three days, and the other two I’ll go more budget.’”
For travel brands hoping to capitalize on millennials’ willingness to spend, this means understanding where different services fit in millennial priorities. One method of doing this is by selling travel services as ancillaries, where different components of a hotel stay, package tour or a flight are split apart as separate purchases. Take the aviation industry for example, where millennial travelers may not be as inclined to pay top dollar to get from point A to point B.
This preference has been a boon to low-cost airlines in the United States, Europe and Asia, where the low base fare model, supplemented by additional fees for add-on services, is gaining in popularity. According to International Air Transport Association (IATA) estimates, low-cost carriers including Southwest, Ryanair and EasyJet all rank in the top 10 worldwide in terms of annual passengers carried.
Other travel executives confirm that millennials’ selective spending requires a rethink of what services they are more or less likely to buy. “Millennials love to travel but don’t prioritize the amenities they might get on a flight over the experiences they have at their destination,” said Spirit Airlines’ Paul Berry speaking with Millennial Marketing. “We’ve seen the studies that say millennials demand Wi-Fi and booking with mobile, and will only patronize companies that have great Yelp ratings. We don’t necessarily see that playing out.”
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Photo credit: Generator Venice hostel. Generator Hostels