The latest RSM consumer outlook gives a mixed picture for domestic and international travel in 2024. With another year of economic uncertainty ahead, consumers are feeling the pinch in their finances, and as a result, we’re likely to see the demand bubble that emerged post-Covid begin to deflate. However, with travel still one of the last areas that consumers are willing to cut back on, the desire for short breaks and holidays remains. Consumers are however likely to be more discerning with their plans. Particularly when it comes to cost.
Post-Covid demand for travel eases
Our survey results show a significant shift in travel intentions for 2024 compared to 2023. Across all demographics, there was a decline in the desire to take a holiday in the next year, except for short breaks abroad which increased slightly by 2%. This suggests that the 'revenge travel' trend that emerged after Covid-19 is fading away. Even high-income households, who have more financial resources have seen a reduction in intentions to travel. This group expressed that they are less likely to plan a long break overseas, dropping from 54% in 2023 to 43% in 2024.
Given the ongoing financial strain on consumers, it is not surprising that they are more reluctant to travel this year. One key factor is the increasing cost of flying. The Office of National Statistics (ONS) reported that air passenger travel prices in summer 2023 were 60% higher than before the pandemic in 2019, and 19% higher than in 2022. Although fuel prices are down from their peak, they are still much higher than pre-Covid, which means air fares will likely remain high in 2024, contributing to the decline in the appetite for overseas travel this year.
The desire to travel domestically has also decreased by an average of 3.5% compared to last year. This is especially noticeable among consumers who are more likely to travel – high earners. In 2023, 56% of households with an income of £80K or more intended to take a trip of five days or longer in the UK. This year, only 43% of respondents have the same intention. This decline in domestic travel demand could be related to the sharp increase in UK hotel prices in recent years. The RSM Hotels Tracker shows the average daily rate for a hotel room in 2023 was 21% higher than before Covid. With rising costs having the most influence on consumer spending this year, it is likely that demand will weaken if rates continue to grow at the current pace.
With inflationary pressures easing and real wages growing, it would be expected that consumer sentiment towards travel will improve throughout the year. However, with lockdowns beginning to feel like a distant memory, and consumers no longer stuck within their own four walls, the experience-led spending trend we saw explode at the end of 2022 will likely begin to soften. For many, mortgage rate rises and rent hikes will exacerbate the prolonged drag on consumers’ finances. In our view, this means holidays – the ultimate discretionary purchase – will be impacted and see demand remain flat this year.
Travel disruption remains a key factor impacting demand
In Q3, 2023 (from July to September), UK residents made 28.3 million trips abroad. This was an increase of 9.6% compared to the same period in 2022, when 25 million trips were made. This number was still 6% lower than the pre-pandemic level of 30 million trips in Q3, 2019. One possible reason for this was disruption at major UK airports in August 2023, due to air traffic-control problems. The results from our survey support this with respondents indicating the top reason for changing their travel plans after booking was due to flight disruption or cancellations (27%). This result goes up to a third when we look at families in isolation - a key customer segment for the travel industry.
The pandemic had a severe impact on the airline industry, reducing demand and the supply of international travel. As demand recovers, airlines are facing challenges to restore capacity, routes and staff. With job vacancy pressures in the UK easing, but still much higher than we would consider normal, this may continue to cause flight disruptions throughout 2024 as supply continues to struggle to catch up with demand.
Railway strikes were the main factor affecting domestic travel plans this year, with more than 20% of consumers saying they would alter their plans due to industrial action. The dispute around pay and working conditions between Aslef, the drivers' union, and 14 train operators in England has not been resolved with the government, and more strikes are expected this year. With domestic travel disruption likely to continue, hotel operators should consider what impact this will have on them when reviewing forward bookings to help anticipate demand.
ESG credentials entice millennial and high-income travellers
The height of the cost-of-living crisis saw consumers' willingness to spend more on sustainable goods and services wane. However, with inflation easing our survey shows sentiment towards sustainable spending has improved by 4% on average when compared to last year.
Intentions towards spending on travel plans that have a better environmental footprint has increased marginally this year. 31% of respondents stated that their travel plans are influenced by their impact on the environment, compared to 29% in our survey last year. Similarly, 31% of consumers in our 2024 report said they would pay more to stay in a hotel that focuses on being environmentally friendly and is run sustainability.
Millennials and households with an income of over £80k are most likely to spend on sustainable goods and services. Sustainable spending behaviours across these groups carries through to their travel plans. 38% of Millennials say their travel plans are influenced by their impact on the environment, with this jumping to 58% for high-income households who say the same. We see similar intentions from these groups when we look at their willingness to pay more to stay in a sustainably operated hotel. 40% of Millennials agreed that they would pay more for environmentally friendly options, with 58% of households with an income of £80k or more saying the same.
Hotels, travel and tourism businesses have significant challenge when it comes to proving their ESG credentials. They consume considerable amounts of energy, employ vast numbers of people and for those operating in multiple jurisdictions or those that reach a certain turnover bracket, are liable to meet various reporting standards.
However, despite these challenges, brands that prioritise sustainability will gain a competitive edge and attract those environmentally conscious travellers willing to pay more for aligned products and services. Even with difficulties associated in meeting ESG criteria and without a current industry standard to date, it is worthwhile for businesses to invest in improving their ESG performance and communicating it effectively to their customers.
Luxury travel benefits from the downturn of luxury goods
The pandemic resulted in a boom for many luxury goods businesses, as they saw record profits from high earners who had more disposable income and time to spend on home and fashion products. However, this trend is in decline, with many luxury goods businesses reporting a drop in demand for these items.
The hotels, travel and tourism industry is benefitting from this downturn. As high-income households reduce their consumption of material goods, they are shifting their preferences to experiential services such as travel. For example, the proportion of high-income households who plan to increase their spending on short-term breaks has risen from 3% last year to 10% this year. This desire to retreat from everyday life and embrace experience spending has certainly benefited the UK luxury hotels sector.
The UK's luxury hotel sector enjoyed a remarkable recovery in 2023, with the average room rate reaching £327.33, a 35% increase from the pre-Covid level of £243.26. This reflects the return of inbound travel with the latest data from ONS in Q3 of 2023 showing overseas residents made 10.9 million visits to the UK during the period. This is a 10% increase on the same period in 2022.
The recovery of inbound travel can be seen not only in the number of visitors returning to UK shores, but most importantly in the amount of money they are spending. Visitor numbers are still 8% below where they were pre-pandemic in Q3, 2023 (11.9 million), however the amount these visitors are spending is considerably higher than pre-Covid. Estimated spending by overseas visitors to the UK for Q3 was £10.1 billion. That’s an increase of around 10% from Q3 in 2019 (£9.2 billion).
With 2024 forecasts for the number of visitors to UK shores increasing 5% to 39.5 million, we should continue to see increased spending from international visitors. In addition, high-earning UK travellers will spend more on short breaks away, meaning the UK luxury hotel sector should continue to see robust demand. This will allow the luxury sector to remain relatively insulated from cost-of-living pressures which have impacted room rates across the rest of the sector, and shelter them from higher running costs.
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