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 

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.

2. Consumer spending continues to be directed toward experiences 

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.

3. COVID continuation or a close to hospitality’s toughest chapter? 

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.

4. Is business travel on its way back? 

Another sector hugely impacted both in the short- and long-term by the pandemic was business travel. 

The Meetings, Incentives, Conferences and Exhibitions (MICE) sector was cut at a stroke by lockdowns and huge growth in video conferencing changed the face of work forever. So, can we expect a comeback in 2023 or is the age of the face-to-face meeting over?

Once again, it’s an upwards trajectory, with our indicators pointing to continued positive growth, as are other industry bodies. 

Extracting GDS searches, which are a critical business travel booking route, there is a clear trend line of growing searches, and therefore demand throughout the last two years that shows no signs of stopping as we head into 2023. 

During peak season for MICE travel in mid-2022 search volumes for London and Seoul were 40 to 60 times what they were at the beginning of 2021, although this is coming from a very depressed base. 

GDS hotel searches in major business travel destination, 2021 – 2022

Nonetheless, it indicates a return for businesses to booking travel and a vote of confidence in making face-to-face appointments. 

Averaging out search demand trends across this selection of cities displays a clear and consistent upwards trend throughout the period, and as we close 2022, search volumes are at the highest level seen since the start of the global pandemic. 

We are not alone in this analysis, as American Express’ 2023 Global Meetings and Events Forecastexpects broad-based growth in global spend for business travel, rising by 3.1% globally. Once again North America is expected to be the most buoyant region, with growth in spend predicted to hit 3.8%. 

5. A supercharged American rental market 

Another area where North America, and the US specifically, is a market leader is in the vacation rental sector. Here reservations soared above pre-pandemic levels in 2022 according to our data. 

As we closed out the year, demand in the country spiked to the point where double the reservations were made in the first week of December 2022 as compared to 2019, and over the last year only Latin America exceeded North America for reservation growth.

Weekly variation in US holiday rental reservations, 2019 versus 2022

While this comparative lead with other regions has narrowed across the year, and we predict that 2023 will be an extremely strong year for rental booking growth globally, the US is likely to continue to be one of the best performing markets. 

Using a snapshot of 10 major metro markets in the US, we can see continued strength in pricing in the first half of 2023, which reflects strong demand and booking pace. 

Only Miami and Orlando fail to consistently increase in price throughout 2023, which may reflect high seasonality in these destinations, and therefore it seems like the US rental market will enter 2023 as it concluded 2022.

Average price for holiday rentals in 10 major US cities across H1 2023

6. High-end hotels will likely fare better in 2023 

While there is a raft of positive news for the travel industry, we can’t ignore that there are some storm clouds on the horizon. As we have noted, incomes are stagnant or falling for the average consumer as we close 2022. 

While the head of the International Monetary Fund (IMF) expects that a third of the global economy will be in recession in 2023.

A sector that is much more insulated against these risks is the luxury sector, as wealthier consumers are less sensitive to economic shocks, with a better cushion against issues like high inflation.

Pricing comparison for five-star hotels and three star-hotels in H1 2023 compared to H1 2019

Therefore, another trend we can expect to continue into 2023 is that high-end hotels will outperform the market.

Five-star hotels show higher price growth in H1 2023 when compared to 2019 than for one- to three-star hotels. For the former, nominal prices posted in H1 2023 are 22-23% up from 2019 levels, whereas their less luxurious counterparts are advertising rates 14-15% above pre-pandemic levels.

7. America resurgent, Europe cautious and Asia currently lagging slightly behind 

Looking across our data there are a few mega trends to pick out. First is that the Asia market looks like it has the weakest outlook in 2023, while the US is potentially the strongest major economy from a tourism perspective. 

Aggregating and averaging pricing across regions, we can see that Q1 2023 hotel price growth for Asia from the same period in 2019 falls far behind any other region, and that North America slightly leads Europe. 

Ahead of all of these are Oceania, reinforcing how a strong pandemic response has helped the region return to growth, and the Middle East and North Africa region, home to many luxury holiday destinations. 

Changes in prices for hotels in Q1 2023 compared to Q1 2019 split by world region

This growth underlines how the top end of the market presents the strongest demand segment in 2023.

Looking at our top 10 destinations for price growth in Q1 2023, that trend continues, with many resorts catering to long-distance travellers being represented. These include Maui, Sharm El Sheikh, Palm Beach and Los Cabos.

Top 10 pricing growth leaders in Q1 2023

That summarises our seven key trends for 2023. Taking them into account and using them to influence your commercial strategy makes long-term sense this year. If you need help in doing this, then we are here to give you advice and set you up for success.