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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.

NB: This is an article from OTA Insight

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.

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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

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.

Read rest of the article at OTA Insight