New luxury consumers need to come from somewhere, and a slightly more wealthy middle class can provide an entry point for brands.
The size of luxury hotels’ customer market is growing quickly as disposable incomes in some sectors become more common and better informed travelers look to improve the basic travel experience.
Luxury travel is democratizing through the upscaling of the mass market and anti-premiumization of ultra-luxury. This sweet spot where these two trends meet, defined as “affordable luxury” by Euromonitor in its recent Post-Luxury Travel Report, is opening opportunities for travel companies on both sides of the spectrum.
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Affordable luxury takes advantage of certain economic factors while also taking into account the social factors impacting spending behavior.
Capitalizing on Disposable Income Growth
Traditional luxury travel providers who only appeal to high-net-worth individuals, here described as adults with $1 million+ in net assets, are missing a much larger target market.
The population of high-net-worth individuals is expected to grow strongly until 2030 and then become small in comparison to households with smaller incomes but still sizable disposable incomes.
Take, for example, affluent households with disposable incomes of more than $300,000. They account for 1.5 percent of all households today and are expected to grow to 3.1 percent by 2030.
Even more significant is the growth of households with a disposable income of $100,000, which is coming primarily from developing nations such as India and China. They account for 9.3 percent of all households today and are expected to grow to 21.1 percent by 2030, according to Euromonitor Research.
It’s interesting to note that saturation sets in within a certain disposable income level.
There is a strong relationship between the number of households with disposable income and spending on accommodation, but there is little variability between disposable incomes of more than $300,000 versus those of $100,000.
It is expected that this increase in disposable incomes will result in more frequent travel and a slight decrease in average spend per trip — which will benefit those hoteliers who understand and adapt to this new category of affordable luxury.
Households with disposable incomes of more than $300,000 and more than $100,000 are expected to increase 9 percent CAGR between 2015 and 2020, however, value sales for luxury hotels are expected to grow by only 2.9 percent CAGR over the same period.
Not only is the expect growth of luxury hotel sales less than the growth of disposable incomes, it is slower than the the growth of mid-market hotel and short-term rentals. These are sectors that the luxury market managed to stay ahead of between 2010 and 2016.
This represents a huge opportunity for luxury hotels.
Key to taking advantage of this growth of an affordable luxury market is recognizing social factors that change exactly what luxury means.
While perceptions of opulence and high price tags once defined what luxury was, the more important aspects of luxury today touch upon time to relax and disconnect, open and well-designed spaces, authentic messaging, the facilitation of a community setting and ability to connect, and the resources to improve health.
These societal shifts in what consumers want touch all sectors of the hospitality business, but are particularly important in the affordable luxury market where consumers are willing to pay more if it promises to provide the time, connection and mindfulness they miss in their everyday lives.
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Photo credit: Interior of Washington School House Hotel, a boutique property in Park City, UT that eschews the traditional trappings of luxury for more modern interpretations. Washington School House Hotel