This coming year is full of both promise and uncertainty for the travel industry. See what proprietary Skift Research has to say about how travel marketers should prepare.
Skift CEO Rafat Ali and Skift Research senior analysts Varsha Arora and Pranavi Agarwal went live on LinkedIn to discuss the key findings and implications from the latest U.S. Travel Tracker survey conducted in January 2023. Skift Research has been conducting bi-monthly U.S. travel surveys since January 2020 amongst 1,000 U.S. consumers, to examine travel behavior, demands and expectations.
The session discussed how current economic uncertainty is impacting travel expectations for 2023, how travel players and destinations respond to changing travel behavior and what our expectations are for growth in the short-term rental industry. While addressing the questions from the audience, topics like luxury travel, business traveler sentiment, digital nomads, and outbound tourism from China were also discussed.
The discussion painted a bullish outlook for the travel industry in 2023. Although fears of a 2023 recession in the US remain high and personal saving rates have fallen, Skift Research believes that travel will remain resilient to most economic tremors.
For one, travel is inherently a luxury consumer spend item and is thus somewhat protected in a recession, and the pent-up demand of 2022 has shown that travel has become more important in peoples’ spending hierarchy. In addition, travel recovery in Asia is expected to boost global travel, and business travel seems more resilient than some feared. Blended travel and digital nomadism, important new faces of business travel, will continue to give a push to travel in 2023.
High Prices Drive Demand for Discounts
Today, prices of travel products are much higher than pre-pandemic levels, and given the uncertain economic environment, Skift Research findings show that there is growing demand for discounted offerings.
Throughout the Covid recovery we have seen that hotel rates have not fallen as much as occupancy levels. With people simply unable to travel due to restrictions, any discount in hotel price did little to attract demand. This is different to the 2008-09 recession, where hotel rates fell more than occupancy as hoteliers reduced prices in order to encourage heads in beds. As independent hotels struggled, this allowed the online travel agents to come onto the field as dominant players by offering cheap, discounted rates.
As we enter a potential 2023 recession in the US, we are seeing signs of weakening consumer spending and there is increased demand for discounted travel. However, unlike the 2008-09 recession, where hoteliers lost share and pricing power to the online travel agents, we are instead seeing that direct bookings are gaining back share of distribution.
We are also seeing discounts being offered earlier in the booking window than before the pandemic, validating that the travel industry is keen on maintaining price discipline and letting pricing lead the recovery instead of occupancy.
What Else to Expect in 2023
In the session, our analysts discussed a wide range of topics and also took audience questions. Some additional key points discussed:
- Luxury travel is expected to remain strong this year, despite fears of a recession in the U.S. Though luxury hotel pricing is materially higher than pre-pandemic levels, with luxury the only chain scale segment seeing pricing above inflation, we expect luxury prices to remain sustained through 2023. Although rates are above 2019 levels, occupancy is still yet to recover, and as demand comes back, especially from international travelers, rates should rise to meet that demand. The rise in luxury travel has also seen many brands lean more into their luxury portfolio. In the US today, construction of hotels as a percentage of existing supply is highest in luxury as compared to other chain scales.
- Business travel in the US is predicted to have reached 85% of pre-pandemic levels in 2022. Whether business travel will fully recover is a key question in the travel industry and remains in crystal ball gazing territory. While some believe that this will be the new normal and that business travel will continue to witness suppressed demand, major US hotel brands continue to push a bullish message on the recovery of business travel, for instance, Chris Nassetta, CEO of Hilton believes that business travel will surpass pre-pandemic levels in 2023, led by new use cases from remote working and digital nomads. At the same time, sweeping layoffs in industries like tech and finance show that the road to full recovery remains bumpy. Furthermore, trends in the business travel industry are bound to have a direct impact on the corporate events industry. If business travel demand shrinks, attendance at business events will also shrink.
- Short-term rentals (STRs) continue to show strong performance, with a considerable uptick in December 2022 over 2021 and 2020. December is the month to visit friends and family, and STRs are better placed to cater to this demand. As per Skift Research estimates, revenue of the STR industry is expected to grow by 10% in 2023 over 2022 and STRs are set to become a $145 billion revenue industry in 2023.
Chinese outbound tourism in 2023 remains an unknown. Domestic travel in China is still recovering. Stricter restrictions are being put for entry of Chinese travelers into other countries, which might further hinder the recovery of outbound tourism from China. To top it all, the political climate is becoming more tense which will also have an impact on when and where the Chinese will travel. The big picture is that China was the largest exporter of outbound tourism in 2019. It is nearly impossible to have a true recovery without China. Now, will the floodgates burst open in 2023, or will it be a more gradual build up?
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State of Travel
Skift Research’s 180-slide overview of the business of travel, covering consumer and macroeconomic trends, and performance analysis of all travel sectors.