Skift Travel News Blog

Rising hotel room rates in the U.S. are still contributing to an overall rise in the national cost of living, but the pace of hotel rate hikes is slowing, according to new numbers released on Tuesday.

Hotel rates rose 1.8% in May from April, according to the U.S. Bureau of Labor Statistics, which reported the seasonally adjusted percentage changes.

Looking longer-term, rates in May were 3% higher than a year earlier. That’s a much lower annualized inflation rate than the 22.2% a year ago.

The government also provided an update on recent monthly hotel rate changes: Rates dropped 3% in April versus March. Rates rose 2.7% between February and March.

The backstory is an overall moderation in the recent bout of inflation. The hotel sector has seen dramatic spikes in nightly rates compared to post-pandemic lows, as rises in demand collided with strained supply from properties struggling to find and keep workers.

“In the U.S., the average daily rate on a real basis is a dollar off where we were in March 2019,” said Amanda Hite, president of STR, the leader in hotel performance benchmarking, in an interview last week. “So for all the price growth we’ve seen, we aren’t back to where we were pre-pandemic, on average overall.”

The government data includes “lodging away from home including hotels and motels” but excludes lodging at schools and is based on survey data.

For more context, read: “Hotel CEOs Are Loving Limited Rooms and High Prices.”

Most European travelers plan to take spring and early summer in the next months, according to a European Travel Commission survey. Around 40 percent will travel in June or July, while only 23 percent expect to travel in August and September, down 9 percent year over year. In April and May, almost 30 percent will take or took a trip.

The commission surveyed 6,000 Europeans in March who took at least 2 overnight trips during the last three years.

Between April and September, 72 percent of Europeans plan to travel, down 5 percent year over year.  Nearly three-quarters of Europeans over the age of 25 will travel in this period, while 61 percent of those under 25 years old plan to take a trip in this period. 

Europeans are hungry to travel in the next six months. By September, 60 percent will take multiple trips. Solo travelers are leading the trend with 34 percent planning at least trips, up 8 percent year over year.

Traveling within Europe is the top choice. Only 11 percent have trips planned for outside the region, while 58 percent will go to a neighboring country or a non-neighboring one.

Nearly half of travelers won’t change their trip budget in the next six months. Almost 20 percent will spend more. Those planning to spend more than 1,500 euros has risen by 7 percent year over year to 37 percent. 

The older traveler segment will spend more and take longer trips compared to other demographic groups.  Over half of travelers over the age of 54 will take trips that are at least 7 nights long and have budgets over 1,500 euros.

In the face of inflation and rising travel costs, travelers will cut back spending at their destinations.  About 17 percent will cut shopping expenses, 16 percent will choose less expensive accommodation and 15 percent will choose less expensive restaurants.

Europeans are also booking early to avoid higher prices. In fact, 52 percent of Europeans have already fully or partially booked their next trip, up 8 percent from 2022.

As more hotels strive to optimize costs, improve return on investment and reduce cost of customer acquisition by generating direct revenue through metasearch platforms, travel technology firm RateGain continues to see considerable demand for its metasearch and digital marketing offerings, Bhanu Chopra, RateGain’s founder and chairman, said.

“We continue to see little or no impact on the overall travel industry as well as our business due to the ongoing increase in inflation, talk about rising interest rates or the ongoing Ukraine conflict,” Chopra said.

Marketing technology has emerged as the biggest vertical for RateGain, with a recurring revenue of 99 percent contributing 41 percent of the company’s overall revenue for the quarter ending June 30, 2022.

Continuing on its path of fiscal prudence, Chopra said RateGain, which made its debut in the stock market in India last year, continues to be one of the very few profitable software-as-a-service companies globally.

“We stay committed to improving profitability through cost optimization and revisiting our commercial agreements to increase revenue per customer,” Chopra said during the earnings call.

The company registered a 59 percent year-on-year revenue growth with revenue from operations reaching $15 million compared to $9 million in the corresponding quarter last year.

“We see robust growth and our annual recurring revenue is now 20 percent higher than pre-Covid levels and is 10 percent higher level compared to the last quarter,” Chopra said.

Given the labor shortages in the travel industry, there has been an acceleration towards digitization and RateGain is well positioned to capture this opportunity, according to Chopra.

“Using artificial intelligence and machine learning we are innovating and launching new products to help our customers acquire guests, retain them and expand on their wallet share,” he said.

Citing Skift Travel Health Index, Chopra said there has been continued improvement in travel demand across the world with more countries now reporting numbers at pre-Covid levels or higher.

Given the return of travel, the company’s transactional volume is up by close to 40 percent. The bundling of data-as-a-service products with marketing technology businesses has resonated very well for the company.

The data-as-a-service business unit grew on the pack of strong volumes of its online travel agency and airline products driven by existing Tier 1 accounts and new accounts, Chopra said. “Also, we entered adjacent sub-verticals within travel such as destination management companies and vacation rental companies and signed up for a set of customers.”

RateGain has also said that it would be investing in launching new products and test piloting them this quarter.

Despite the euphoria around the return of international business travel, a data analytics firm has predicted a gloomier outlook.

GlobalData has said it is unlikely to recover until at least 2026.

It’s singled out the complexity of business travel, which it said still faces several added layers of complexity that affect consumer behaviour, purchase decisions, and general operations.

“Despite some encouraging signs of revival for the overall travel industry in 2022, the business travel sector is witnessing a slower-than-expected recovery, particularly regarding international travel,” it reported.

Those challenges will persist over the next four years, it said, adding that another prominent disruption was the rising cost of living fuelled by the ongoing energy crisis, due to “low energy reserves due to the pandemic and the current geopolitical situation between Russia and Ukraine.”

These increased energy costs are putting further pressure on businesses that are seeing operational overheads soar, with the result that business travel is no longer a priority for companies, it claimed.

Its Tourism Demands and Flows Database also found that international business travel fell by 78.4 percent in 2020, before falling a further 7.9 percent in 2021.

One of the biggest concerns for the global travel industry’s recovery coming out of the pandemic lows has been inflation and how it would affect people’s intent to travel. While summer looks like it will be a big one for the travel industry, here is some early survey data from Tripadvisor that people are willing to sacrifice other non-essentials for their plans to travel, particularly domestic travel.

From Tripadvisor, surveys conducted in United States, United Kingdom, Australia, Japan, and Singapore show while travel behaviors might change for some as a result from June-August (shorter trips or preference for domestic travel), consumers across the globe are refusing to give up their desire to vacation or holiday, especially in the Northern Hemisphere during the summer months. More than a third of global respondents report they intend to travel more in 2022 than they did in 2021, which bodes well for the ongoing travel recovery.

Inflation Concerns

Inflation is a significant concern for the majority of respondents within the survey, with 74% reporting they were “extremely” or “very” concerned about the rising costs of goods and services.

Continuing inflation will likely affect non-essential spending habits: 79% said they would spend less on non-essentials if prices continue to go up:

When it comes to cutting down on non-essential spending, dining out and clothes top the list (items consumers will cut down on the most):

On the other hand, fewer people plan cuts to domestic travel, TV/music subscriptions, and international travel than other options (items consumers will cut down on the least):

• United States: international travel (37%) and domestic travel (38%)
• United Kingdom: domestic travel (35%) and TV/music subscriptions (45%)
• Australia: domestic travel (37%) and TV/music subscriptions (39%)
• Japan: TV/music subscriptions (22%) and technology purchases (32%)
• Singapore: domestic travel (26%) and TV/music subscriptions (38%)

In fact, those surveyed would sacrifice a range of non-essentials to fund their next vacation:

• United States: food deliveries (57%) and nights out (54%)
• United Kingdom: nights out (60%) and dining out (57%)
• Australia: food deliveries (62%) and nights out (60%)
• Japan: food deliveries (59%) and gym membership (58%)
• Singapore: Entertainment (attending gigs/concerts) (56%) and gym membership (54%)

Not surprisingly, rising costs will have some effect on travel this summer: 33% will likely take shorter trips, and 32% may travel closer to home: