The cost of travel is increasing by necessity and remains cost-effective

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In recent months, hotels around the world have experienced near-normal occupancy levels and much higher levels compared to pre-pandemic times. While bed head counts for many hotels have not reached stellar 2019 levels, buoyant growth in room rates has often led to a lack of demand. Indeed, low occupancy and high prices are now the preferred operating model for many hotels. However, with a potential cost-of-living crisis looming, consumers are becoming more price conscious and in control. That certainly raises questions about the sustainability of current rates.

Based on STR’s July 2022 survey, this article outlines key consumer attitudes and behaviors that can help revenue managers strategize for the coming year.

Location, location, location… and price

Time and time again, our consumer research shows that it’s the most important factor when choosing a place to live. In our July survey, more than 80% of respondents said that a place they had recently visited or booked was an important factor influencing their decision. This was a similar result compared to May 2022, which reinforces its importance in the context of rising inflation, when weighing accommodation options for consumers.

Source: STRSource: STR
Source: STR

But, relevant now, the next most important variable is price or cash value. In our recent survey, value for money was chosen by 62 percent of respondents—up from 57 percent in May 2022.

Prices are a big issue among young consumers. In fact, recent results show that for the under-35s, location is just as important when choosing a place to live. Free Wi-Fi is also a big plus for this group. Overall, the findings suggest that these guests are particularly price-conscious and sensitive. Targeting a younger audience—a key strategy for building long-term loyalty for some brands—may therefore require more creativity, especially as disposable income may be squeezed.

Source: STRSource: STR
Source: STR

Discounts are becoming more important.

Consumer industries routinely use pricing strategies such as discounts and special offers to drive new business. Recent findings suggest that consumers may be looking for discounts and special offers in the current environment. This suggests that as we enter the quiet shoulder season, particularly in the Northern Hemisphere, some hotels may offer additional promotions and value added to encourage business.

Source: STRSource: STR
Source: STR
Source: STRSource: STR
Source: STR

Just under half (49%) of consumers say they are spending more time looking for the best accommodation or travel option compared to the beginning of the year. Among those who had recently booked a stay at a high-end hotel, that number increased to 56 percent. Meanwhile, special offers may not be as important to budget hotels as only 45% of guests at this type of property agree that they spend too much time looking for deals.

The results again highlight that consumers have different criteria when choosing accommodation. For high-end hotels, discounts and special offers may be more important going forward to drive occupancy, while promotions may be less relevant for budget hotels as they are viewed more from a cost perspective.

But the reduction in travel costs is not a foregone conclusion.

While the previous impressions seemed a bit bleak for the hotel industry, there is now some evidence that travel budgets may shrink even further in the future.

Overall, just over 40% expect spending on travel to decrease over the next 12 months, while the rest (58%) expect to spend the same or more on travel. This limitation indicates that there is currently no cause for concern regarding the reduction in travel costs.

Source: STRSource: STR
Source: STR
Source: STRSource: STR
Source: STR

Perhaps consistent with previous findings, luxury hotels are less likely to make a significant dent in family travel budgets. Compared to budget hotel guests who had recently booked a stay at a luxury or upscale hotel, they were less likely to cut their spending. Only 25 percent of upscale hotel consumers think they will cut costs in the next 12 months, compared to 45 percent of budget hotel guests.

While high-end hotels need to be more creative in their sales strategies to lure guests amid the current economic uncertainty, their target markets are more optimistic about their financial future, which bodes well for the segment.

The problem of inflation: spending the same or more, but earning less

Hoteliers face increasing headaches as inflation is a major factor worldwide. On the one hand, supply chain issues and inflationary pressures are increasing operating costs, while on the other hand, real income levels are decreasing.

Integrating additional hotel services and features is one way travel businesses are addressing the increasing cost challenges. The practice has been implemented in recent years as most hotels increase the demand for flexibility by offering different rates based on cancellation policies. Carrying additional services allows hotels to maintain more competitive room rates, which can be critical if costs are put under the microscope by consumers.

About STR

STR provides premium data reference, analytics and marketplace insights to the global hospitality industry. Founded in 1985, STR has operations in 15 countries with corporate North American headquarters in Hendersonville, Tennessee, global headquarters in London, and Asia Pacific headquarters in Singapore. STR was acquired by CoStar Group Inc. in October 2019. (NASDAQ: CSGP), a leading provider of commercial real estate information, analytics and online marketplaces. For more information, please visit str.com and costargroup.com.

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