Roughly 9% of global GDP this year will stem from traveler spending. The massive market, worth $8.6 trillion, presents ample opportunity for travel and tourism suppliers, according to McKinsey & Company’s newly released “State of Tourism and Hospitality 2024” report.
But tapping into those dollars isn’t necessarily easy. Travel providers will need to understand “how to quench the thirst for travel,” according to Jasperina de Vries, an associate partner in McKinsey’s travel, logistics and infrastructure practice.
Quenching that thirst will look different this year than in years past, as traveler preferences, demographics and geographies shift.
Hotel Dive sat down with de Vries to unpack McKinsey’s findings and discuss how hospitality players can prepare for the traveler of the future.
Travel stays a priority
According to McKinsey, global travel is on its way to a full recovery in 2024.
Much of that travel is taking place close to home, according to the report. Globally, domestic travel is expected to grow 3% annually, reaching 19 billion lodging nights per year by 2030.
That’s particularly true in the U.S., “the largest travel market domestically in the world,” de Vries said, noting that some 68% of trips that start in the U.S. are to destinations within the country.
Though “revenge travel” led travelers to pursue international trips when pandemic-related restrictions eased, domestic travel rates will return to “pre-pandemic norms” — with domestic travel making up 70% of travel spending by 2030, according to the report.
In response to travelers’ preference for proximity, McKinsey recommends travel players “encourage domestic tourists to rediscover local gems.” For example, the report cited French hotel brand Relais & Chateaux, which marketed historic sights to visit outside of the classic Paris bubble.
Making travel dollars count
Though inflation and record costs are impacting Americans’ travel budgets, most will continue to travel regardless.
McKinsey found that the most cost-constrained consumers will reduce travel, affecting budget hotels. But most American consumers rank travel — both domestic and international — as their “highest-priority” areas for discretionary spending. Instead of canceling their trips due to cost, travelers are finding workarounds, such as traveling at off-peak times or booking further in advance. (Deloitte noticed a similar trend among cost-conscious travelers in its 2024 Summer Travel Report.)
The big opportunities for hospitality providers are in how they can make the most out of their offering, how they can differentiate, without distracting too much from their core customer base.
Jasperina de Vries
associate partner in McKinsey’s travel, logistics and infrastructure practice
When it comes to traveler motivations, de Vries said, “There's an ever-higher desire for people to be proactively sharing about what their experience is [online], in addition to actually experiencing something.”
“Hospitality players can obviously play a big role there,” she added. “They can help travelers share their journey.”
Hotels can embrace this in a number of ways, according to McKinsey, such as installing an on-property photo booth or sending guests photo memories on a trip’s anniversary.
Luxury and ‘aspiring’ luxury
With luxury travel booming, McKinsey expects demand for luxury hospitality to grow faster than any other travel segment.
However, the profiles of luxury travelers are becoming more nuanced and varied. In the report, McKinsey highlighted several common preconceptions about luxury travelers that don’t always hold true.
Notably, one preconception is that luxury travelers are all very wealthy. Rather, growth in the segment has been spurred in part by what McKinsey calls “aspiring luxury travelers,” who have net worths under $1 million and spend a large portion of their money on upscale travel. Many of these travelers are younger, the report notes.
De Vries called aspirational luxury travelers “a segment that might be overlooked.” Hospitality suppliers, she said, should “think about to what extent you are particularly addressing those [aspirational travelers], because they have distinct preferences versus other luxury travelers.”
According to the report, luxury “means different things to travelers at different wealth levels.” Ultra-high-net-worth individuals gravitate toward quiet luxury and exclusive experiences. High-net-worth individuals like boutique travel agents and often seek privacy and exclusivity.
Aspiring luxury travelers, meanwhile, splurge on special occasions, like their luxury providers to have visible branding and aren’t opposed to loyalty program benefits. “There's still a value-for-money aspect for these luxury travelers,” de Vries said.
For luxury brands, De Vries noted, understanding the varied profiles of luxury travelers can be a ”unique opportunity to optimize your brand's niche.”
Luxury generational shifts and preferences
Believing that “luxury travelers are old” is another preconception that’s not always the case, according to McKinsey.
The vast majority of luxury spending comes from travelers under 60 years old, the report found, and younger travelers are increasingly willing to spend on luxury travel.
Serving up a one-size-fits-all experience is no longer sufficient. Using data to segment customers by behavior can help tourism players identify opportunities to tailor their approaches more narrowly.
McKinsey & Company
“State of Tourism and Hospitality 2024”
Multigenerational luxury travel is also a “growing trend,” according to the report, which suggests that luxury players offer features that can appeal to both parents and their teenage children.
Working to attract customers in their 20s is also important, given they can offer “lifetime value.” These younger travelers crave social experiences, authenticity and digital connectedness when they travel, McKinsey said.
Across segments, younger generations “appear to propel much of the rising interest in travel,” according to the report. But these travelers are more willing to travel internationally for unique experiences — a notable difference from older generations, such as baby boomers, who like to travel domestically to spend time with family.
Understanding the traveler
Hospitality and tourism players will need to adapt to these “nuanced and proliferating” traveler types, de Vries said.
“Serving up a one-size-fits-all experience is no longer sufficient,” according to the report. “Using data to segment customers by behavior can help tourism players identify opportunities to tailor their approaches more narrowly.”
Fortunately, the travel industry already has access to “quite valuable” data about guests, De Vries said.
“Personalization is something that is slowly becoming more of a standard,” she added. Hospitality players’ marketing strategy will no longer be about “establishing eight or 10 fixed personas for the next two or three years,” but rather hyper-personalizing for a variety of use cases.
“The big opportunities for hospitality providers are in how they can make the most out of their offering, how they can differentiate, without distracting too much from their core customer base,” de Vries said.
It’s a challenge, but the industry has already proven its ability to adapt quickly to change.
“If there's one thing when we look back at the pandemic period, it's that we definitely have all realized that it's important to really keep your hands close to the wheel,” De Vries said.
