Inflation is the word on everyone’s lips right now and with good reason.
NB: This is an article from OTA Insight
No matter what industry you’re in the record level of inflation is having a big effect on day-to-day business. The hotel industry is no exception. A quick scan of Booking.com or Expedia and you will immediately notice the apparent impact of inflation on hotel rates.
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Everywhere you look in Europe, room prices are soaring. But, this rise in prices isn’t driven purely by inflationary pressures. The hotel industry is also experiencing an extraordinarily high level of demand.
As the European travel market has returned to a period of relative normality this summer, uncoincidentally, two years of bottled-up consumer wanderlust has been released.
In the short to medium term, with inflation continuing its upward trend to the end of the year and ease of travel returning to its pre-pandemic status quo, it’s likely that demand will remain high, and prices will continue to creep upwards. But, can we say the same for 2023?
Using our wealth of historical, current and future looking rate and demand data, we take a thorough investigation into Europe’s rate landscape, for this summer and beyond.
Inflation, rising costs and room rates
Taking a look at our historic hotel pricing data, comparing average room rates from 2019 to 2022, we can see that rates are considerably higher right now across Europe’s major cities and popular summer holiday destinations than in previous years.
If we take room prices for the month of June, for key European city destinations: Rome is up 51.4%, Berlin 50.2%, Dublin 44.5%, London 44.3%, Barcelona 29%, London 44.3%, Amsterdam 12.1% and Paris 19.8%.
Pricing recovery destination comparison – Major European cities
There is a similar trend across Summer tourism hotspots for the month of June 2022 with Palma De Mallorca up 40%, Ibiza 30%, Aix en Provence 21%, Albufeira 20%, Montpellier 14% and Rhodes 13%.
Pricing recovery destination comparison – Popular European summer destinations
From this data and qualitative accounts from hoteliers, we can comfortably conclude that inflation and particularly rising energy costs are having a substantial impact on the hotel rate landscape across Europe.
External factors, namely economies rapidly opening up post covid and Russia’s invasion of Ukraine have put extreme strain on supply chains. As a result, there has been a dramatic rise in energy and food costs (among others), for hoteliers.
Without putting up rates and thus increasing RevPar, hotel profit margins would inevitably drop quite substantially, and for most, to unsustainable levels.
It is also worth noting that labour costs have risen hugely for hoteliers as economies have reopened. There are now more job vacancies than people out there to fill them, meaning hoteliers are having to offer higher wages. Once again increasing their costs.
Inflationary pressure and rising costs are also coupled with the ability to price very high due to a remarkable jump in demand for lodging, without any significant supply growth since the start of the pandemic.