Joe Younger was amazed to see hotel prices for his 10-day holiday in Montenegro this August had rocketed 80 per cent since he started looking into a trip last year to as much as £800, with a higher air fare another painful cost.
However, the 30-year-old London-based engineer has been cutting down on socialising to save money and is determined to proceed. “I love travelling,” he said. “I had to cancel my trips to New York, Amsterdam and other cities because of the pandemic, so I’m now excited to travel all over the world.”
Younger exemplifies the army of travellers who have rushed to book travel in the two years since Covid-19 restrictions eased. But the question being asked by executives and analysts as the economy slows down and interest rate rises put pressure on household budgets is whether this boom is a blip or a lasting trend.
Summer hotel prices have soared more than 50 per cent in three-quarters of 35 popular European cities this year, according to research by the Post Office. Madrid experienced the steepest rise, with the price of a two-night stay jumping to £385 this year from £161 in 2022.
Hotels in London, Rome, Madrid and Paris are enjoying a boom even when compared with the pre-pandemic era. Revenue per available room rose the most of the four cities in Rome, where it was 60 per cent higher in June than in the same month in 2019, according to hotel data provider STR.
“Many hoteliers have been able to mitigate some of the cost pressure be it labour costs, food costs, general inflationary pressure, by driving up the average room rate,” said Andreas Scriven, partner and head of hospitality and leisure at Deloitte. “But how long can that go on for? Everybody is asking themselves the same question.”
Many within the travel and tourism industry, which accounted for 9.6 per cent of gross domestic product in the EU in 2019 according to the World Travel & Tourism Council, believe the post-pandemic travel boom may well persist.
Patrick Mendes, the chief executive of Europe and North Africa for Accor’s Premium, Midscale and Economy division, said travelling had become the “number one or two priority” among people’s spending and would prove sustainable.
“I’ve been working in this industry for more than 20 years and I can tell you that we are clearly in great momentum,” he said.
Three-quarters of Europeans surveyed by Ipsos and insurer Europ Assistance said they intended to travel this summer, up 4 per cent from 2022 and the highest level since 2011.
“This is a golden age . . . summer bookings for many hotels have already surpassed 2019 numbers. So we really expect a very robust 2023 for the lodging sector,” said Hina Shoeb, a director at S&P Global Ratings.
But others are more sceptical that the uptick can be maintained as would-be holidaymakers’ budgets come under pressure from tightening economic conditions.
“Those households who are already struggling with the cost of living crisis may choose to cancel holiday plans abroad or choose shorter or less expensive getaways,” said William Duffey, head of Emea hotels & hospitality capital markets at real estate adviser JLL.
Deloitte’s Scriven added: “We need to be realistic that there is a real risk around people’s spending power going forward. You’ve got obviously less disposable income if you’re exposed to variable-rate mortgage reset, and your dining out costs have already gone up.”
In the meantime, hotel chains are raking in profits even if staff shortages have held back occupancy for some. Accor expects earnings before interest, tax, depreciation and amortisation to soar to somewhere between €920mn and €960mn this year from €675mn in 2022, helped by higher average room rates.
Marriott has increased its full-year profit guidance by 6 per cent to up to $4.54bn, while Premier Inn-owner Whitbread, whose average room rate in London has risen to almost £112 a night from £93 over the past three months, said revenue per available room was 40 per cent higher than pre-pandemic levels.
A lack of new development is also stoking prices. Europe’s hotel room supply rose just 2.7 per cent in the 12 months to March 2023, against 3.6 per cent in the same period four years earlier, according to real estate adviser JLL, which said the slowdown was the result of high construction costs and interest rates for development financing.
Airlines are also experiencing a boost. EasyJet in April more than doubled its guidance for pre-tax profit in the year to the end of September to £260mn on the back of strong bookings and higher ticket prices.
“European consumer sentiment continues to be very strong and robust,” said Johan Lundgren, chief executive. “There’s a very strong demand for flights and travel.”
Meanwhile, Dublin-based Ryanair said summer bookings had been “robust” despite higher fares, which chief financial officer Neil Sorahan attributed to pent-up demand that shows little sign of easing.
“If you look back to the financial crisis, it was quite telling then that people prioritised their mortgage first and travel second,” Sorahan said. “There has continuously been over the last decade a huge desire to travel but people were locked down over the last two, three years.”
The industry defends price rises given the pressure inflation is putting on everything from staff to food costs.
Dalata Hotel Group, the Irish operator of the Maldron and Clayton chains, said this month it expected revenue per available room in the first half of the year to be up 29 per cent on the same period in 2019, with chief executive Dermot Crowley attributing the bulk of the rise to inflation.
Noting that the company had not been able to return margins to pre-pandemic levels, he said “the increases on the cost side have been really, really significant”, pointing to energy prices “three times what they were back in 2019”, along with higher labour and food costs.
“People are willing to pay higher prices for rooms,” he added. “But the reality is, people are paying higher prices for everything.”
For now tourists are willing to swallow the rises. “Price perception of travel has changed,” said Accor’s Mendes. “We are selling at a more expensive rate and this is now becoming profitable for the hospitality business and acceptable to the client . . . we are just at the beginning of a new story.”
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