16 January 2023 | Market Insight, Data science, Rate Insight
If you were hoping for certainty in 2023 after years of turbulence across the travel and hospitality industry, then you’re probably going to be disappointed.
Recessionary risks, continuing inflation, concerned consumers, changing tastes, the lingering effects of COVID-19 and complex geopolitics all cloud the outlook. However, we’re here to pierce the mists of the future using our proprietary datasets and guide you through 2023 with our top trends.
The outlook? Well, it’s a surprisingly positive one for the travel consumer and industry. Consumers continue to lean into experiences following the end of pandemic restrictions, the US appears to be a potential powerhouse for tourism in 2023, and business travel is deep into a recovery phase that will continue this year.
This isn’t to say it’s all going to be smooth sailing. Destinations in Asia-Pacific already most affected by the pandemic will struggle to shake the effects of COVID and many consumers are feeling the strain on their wallets from high inflation.
That’s the high-level picture, now let’s dive into the data, and reveal the hospitality and travel trends shaping 2023.
1. High inflation and its impact on consumer travel spending
2. Consumer spending continues to be directed toward experiences
3. COVID continuation or a close to hospitality’s toughest chapter?
Inflation became an inescapable part of the 2022 news cycle and for good reason. This level of inflation hasn’t been seen for 30 years in most major developed economies, sometimes even longer.
Inflation has been broad-based, as the effects of rising commodity prices and the importance of the dollar to global finance have meant no country has been shielded.
In the UK and Euro Area, inflation had risen to double-digit levels by the close of 2022 and the US has seen inflation consistently top 7% throughout the year.
Even Japan, which has struggled with low or deflationary prices since the 1990s bubble popped, has seen inflation rise to just shy of 4% at the close of 2022, pushing the cost of living to a 41-year high.
So, what knock-on effects could this create for the travel and hospitality industries?
Firstly, it threatens consumers’ ability to purchase travel products by eating away at their real disposable income and can diminish their means to travel as they shore up their personal balance sheets.
Thus far we have seen household incomes suffer as a result of the inflationary environment, but not as much as the headline figures might initially have suggested. Stimulus measures and a strong employment picture have helped to dampen the effects of inflation.
Household income across the OECD has declined modestly in 2022. However, income levels have just about been maintained in real terms compared to the start of 2020, helped along by stimulus measures, which can be most prominently seen in Q2 2020 and Q1 2021 when cheques in the US were sent to households, skewing the statistics upwards for the OECD as a whole.
That direct help has increased US household consumption over what may be expected, and the country appears to be ahead in the fight to tame inflation as well.
While inflation appears to only just be peaking in Europe, the rate of increase has been moderating downwards since mid-2022 in America.
This, an extremely strong dollar, and continued robustness in its economy places the US in pole position to be the most dynamic major travel consumer market globally in 2023.
Elsewhere, travel within the Euro Area is set to be more muted, but spending should not suddenly melt away in the region.
Poorer performers are likely to be the UK, where the Asda/CEBR Income Tracker estimates that weekly family spending fell -11.4% Year-on-Year (YoY) in November 2022, and China and Japan, partly due to economic circumstances, and partly from the effects of coronavirus.
On the side of the hotel industry, rising overheads, particularly energy costs, are still a real and lasting challenge from the previous year - with no sign of abating just yet.
Energy costs are continuing to have a substantial impact on the hotel rate landscape. Without raising room rates and moving some of this cost to the consumer, hotel profit margins would suffer severely. Therefore, as we move through 2023 it is likely we will continue to see higher room prices that outstrip 2019 levels.
Part of what has driven continued spend amongst consumers in the travel industry, despite challenging economic conditions, is pent-up demand for experiences.
The question now is, has that desire been fulfilled and will we see a shift away from spending on experiences in 2023?
The good news is that the appetite very much remains and we should expect the trend of spending directed at experiences to help push the travel market forward in 2023.
We can see that by looking at demand peaks associated with major events.
Taking first events that repeat in the same location, in this case, the Masters in Augusta, Coachella (located next to Palm Springs) and the Montreal Jazz Festival, pricing continues to be extremely robust in all three.
We are not seeing pricing fall behind what we experienced in 2022, indicating healthy demand.
Compared to 2019 in unadjusted dollar terms, hotel pricing in 2023 for the Masters is 48% above 2019 levels, 35% up for Coachella and 49% higher than pre-pandemic for the Montreal Jazz Festival, largely in line or exceeding 2022.
Pricing changes for cities hosting annual events in North America in 2022 and 2023 compared to 2019
It’s a similar outlook for the Superbowl, being held in Phoenix, Arizona this year. Comparing 2019, 2022 and 2023 pricing curves from 4 weeks out from each event, prices for rooms rose 209% in 2019, 57% in 2022 and we are looking at a jump of 163% for this year’s extravaganza.
Superbowl host city pricing changes in 2019, 2022 and 2023
However, these are all situated in North America, what is the picture elsewhere?
Looking at the upcoming Champions League Final in Istanbul, the coronation of King Charles III in London and the Eurovision final in Liverpool, prices show more modest spikes, rising between just 25% in London to 69% in Liverpool.
This suggests that capacity and enthusiasm for spending on experiences is more modest in Europe than in North America, which fits with the better economic sentiment and prospects in the US we noted earlier.
Pricing changes for cities hosting major events in Europe in 2023
The percentage of unavailable hotels can give us some more context when looking at these patterns and what is happening.
Here we can also see North American events are selling out of hotel rooms quicker - with the exception of Liverpool - where hoteliers may have been caught out by the demand levels and failed to adjust their revenue management strategies in time, given the high unavailability this far out, but limited price increases.
Percentage of unavailable hotels in cities hosting major events in 2023 during the week of peak demand
Otherwise, US hotels are sold out more often than for major European events, with the Champions League Final, coronation and also the Rugby World Cup in Paris coming behind the major US events we have analysed
The comparative levels appear to reinforce that while experiences are still a sought-after commodity for travel consumers globally, the US traveller is leading the race.
Turning to Asia-Pacific, markets continue to be coloured by the direct effects of the pandemic and we are seeing extremely varied recoveries, or even a lack thereof, as the region struggles to come back from COVID-19 in several cases.
Critically, the trends in the region appear to be dictated by the response of respective governments to the crisis.
Whereas places that had robust measures and effective, high participation immunisation campaigns - followed by complete removals of travel restrictions - are well on their way back, those that did not fulfil some, or all, of these approaches continue to struggle.
Looking first at countries continuing to labour under the cloud of COVID, we can consider China, Japan and Thailand. These countries continued to have restrictions deep into 2022, and in the case of China, are now facing a major outbreak.
The results of those responses and the presence of the virus has been weak markets, muted demand and lower prices.
With the exception of December 2022, where we ramp up to the New Year in Asia, rates have broadly sat well below 2019 levels, even without adjustment for inflation.
The bottom across these cities sits in April, where Tokyo hotels were, on average, priced 62% cheaper than in 2019 and had a discount of 25% in Bangkok.
2019 versus 2022 price changes for major cities in China, Japan and Thailand
Let’s compare these cities to a selection taken from countries where responses were decisive, allowing restrictions to be lifted earlier and with more confidence. Taking Melbourne, Seoul, Singapore and Sydney, the difference is stark.
With the exception of Seoul, which is most exposed to the Chinese market, all turned consistently positive for pricing levels compared to 2019 by Q2 2022.
While this is a small sample size, this underlines how developed economies across Asia-Pacific are not all reacting the same and how COVID continues to exert an influence over travel when its influence has been able to linger.
2019 versus 2022 price changes for Melbourne, Seoul, Singapore and Sydney
That trend is set to continue well in 2023. China cannot escape the shadow of the virus and several countries have now placed testing requirements on outbound flights, while infection rates have skyrocketed within the country.
Taking Guangzhou and Tokyo, rates for 2023 are extremely weak, failing to rise above 2019 in nominal terms until well into this year.
Pricing levels in Guangzhou, China, 2019 to 2023
Pricing levels in Tokyo, Japan, 2019 to 2023
In the case of the former, the inflection point sits in the middle of the year and for the latter, rates won’t exceed where they sat in 2019 until November 2023.
We can therefore expect a depressed travel market in Northeast Asia for 2023 and for COVID to continue to be a factor for the area in 2023 as consumers remain cautious and restrictions remain a danger to travel plans.
That rounds out part 1 of our top trends for 2023, take a look at part 2 here.
If you want to dive into the data for your market and find out how demand and pricing is shaping up, take a free trial here.
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