Travel continues to power on, fuelled by strong consumer demand with international arrivals expected to reach 95% of their 2019 levels, amounting to an impressive 1.2 billion trips and spending of US1.7 trillion in 2023 worldwide.
International arrivals expected to reach 95% of their 2019 levels, amounting to an impressive 1.2 billion trips and spending of US1.7 trillion in 2023 worldwide
Source: Euromonitor International
As the pandemic fades, travel players are facing a raft of new challenges: the cost-of-living crisis, war in Ukraine, rising prices, supply disruptions, climate events, generative AI and the need to transform to meet net zero targets.
Inflation leads to trading down
Consumers are feeling the pinch from the cost-of-living crisis where inflation has hit record levels and remains stubbornly high, especially in services due to wage pressures. Travel is highly discretionary, and the rising food, energy and labour costs are difficult to absorb by companies and hence are being passed on, culminating in higher prices across the board.
The average spend per international trip in 2023 is expected to rise 8.8% in current terms to USD1,362, whilst air passengers spent on average 15% more in 2022. Prices are set to increase again this year by 4%.
It is unsurprising that consumers are looking for the best value for money.
29.1% of global consumers stated that value for money is their top priority when selecting travel features in 2023
Source: Euromonitor International’s Voice of the Consumer: Travel Survey
The trading down trend is manifesting itself in a variety of different ways. In air travel, low cost carriers (LCC) sales (USD158 billion) are the first to recover to pre-pandemic levels in 2023, as their affordable positioning resonates in a cost-of-living crisis where the average price of LCCs per passenger is half of what consumers pay for full-service scheduled carriers. The increase in average flight price paid was also less at 11% versus 21% for full-service in 2022.
Short-term rentals were faster to return to peak levels than hotels, exceeding 2019 levels in 2022 along with campsites, and expected to reach sales of USD118 billion and USD18 billion, respectively in 2023. This illustrates the trend for consumers to seek out more affordable lodging options, with greater flexibility and a wider choice of locations.
In terms of sales per outlet, luxury hotels and mid-market are not expected to return to pre-pandemic levels until 2024, with upscale, budget and unrated hotels set to surpass their sales per outlet results in 2023 as trading down is taking place between the different price platforms in the search for the best deal.
There is also an uptick in leisure package holidays bought online via intermediaries, with above average growth of 8.1% CAGR 2023-2028 and expected to exceed its peak levels this year, reaching USD123 billion. Package holidays offer consumers greater control over their spending by providing offers such as all-inclusive with upfront costs for food, drinks, activities and wellness. Dynamic packages can also be customised to allow for shorter trips, choice of carriers, or a lower star rating. However, the sustainability of all-inclusive has been in question for several years, as the tourism multiplier effect from indirect spending in local shops and restaurants is diminished.
Destination choice shaped by value for money
Western Europe, Latin America, and the Middle East and Africa are all expected to return to peak inbound tourism spending levels by the end of 2023. Countries with a strong value-for-money proposition are outperforming in their respective regions, with Croatia, Turkey, Mexico, Morocco and the United Arab Emirates exceeding peak levels in 2022, ahead of regional peers.
Asia Pacific will lead the charge after being slower off the mark to reopen after the pandemic, as travel restrictions and protocols lingered. The reopening of China and the return of the Chinese outbound traveller after three long years is a boon for travel, with super-charged growth in 2023 at 466% and peak levels of 100 million outbound trips forecast by 2025. Spending is predicted to be even stronger, recovering by 2024 to USD202 billion.
Climate change a real concern
In peak summer 2023, the Mediterranean witnessed wildfires in Greece, Italy, Tunisia and Algeria, leading to death, destruction of habitats, biodiversity loss and mass evacuations. The UN Secretary General, Antonio Guterres, said that the record temperatures in July marked a new “era of global boiling”. With tourism being a major economic driver in many countries, the reality of extreme climate events and the need to mitigate against climate change become ever more pressing.
According to Euromonitor International’s Travel Forecast Model, inbound tourism spending in the four countries effected by the wildfires combined could witness a potential 15% wiped off their forecast value in 2023, amounting to USD2.9 billion in an extreme natural disaster scenario.
Some progress in sustainable transformation is evident, where rail is a star performer with a 14.6% CAGR 2023-2028, and generating USD300 billion worth of sales by 2028. However, with only 9.1% of consumers selecting travel features based on the ability to reach their destination by car/train rather than flying, according to Euromonitor International’s Voice of the Consumer: Travel Survey 2023, there is a long road ahead.
Eco-tourism package sales forecast to reach USD50.7 billion in 2023, accounting for 22% of all leisure packages, to become the fastest growing category after sports packages
Source: Euromonitor International
Digitalisation picks up the pace
Leisure travel booking, valued at USD2.1 trillion in 2023, is driving the pace of growth, as business travel (USD286 billion) continues to struggle with an existential crisis due to the changing nature of work, rise of virtual events, metaverse and blended travel going mainstream.
Growth continues to be driven by digital transformation, where direct suppliers are catching up with travel intermediaries, as online penetration stands at 70% in 2023, versus 63% respectively. Trip.com, Booking and Expedia continue to dominate the intermediaries space.
Mobile travel bookings are a growth catalyst, recording a 12.2% CAGR 2023-2028, and expected to reach 43% of all online travel sales by 2028
Mobile travel bookings are a growth catalyst, recording a 12.2% CAGR 2023-2028, and expected to reach 43% of all online travel sales by 2028. Without mobile, brands will struggle.
Read our report, Sustainable Travel Index: Ramping Up Action for Positive Change, for further analysis on how to transition to a sustainable tourism destination.
Take a look at our article Affordable Sustainability: Embracing Sustainable Living on a Budget on how to cater for consumers feeling the pinch from inflation through affordable sustainability.