Insight Report 2024

Travel demand strong despite weak economy

Consumer research for this report suggests no let-up in demand for overseas holidays but efforts to control spending, says Travel Weekly executive editor Ian Taylor

A question uppermost in outbound-travel industry minds going into 2024 was could we possibly see as consistently strong demand in the year ahead as in 2023? From the start to January, it appeared we might.

To appreciate how remarkable that and the past 12 months have been, it’s worth looking back to the last issue of this Insight report, published in December 2022. Then it appeared rising inflation would not be reined in without a recession. The report quoted Virgin Atlantic chief executive Shai Weiss’s November 2022 prediction that “it’s going to be a tough 2023”.

There were challenges in the last year, but few would describe the travel market as “tough”. The UK economy avoided the forecast recession and the interminable cost-of-living crisis failed to prevent close to record numbers booking overseas holidays.

There was conflicting evidence on the state of the UK economy at the turn of the year, with inflation unexpectedly ticking higher in December. Yet weak economic growth and sustained higher interest rates appear likely for the year ahead.

Not one but two wars now compound the picture, threatening to trigger higher energy prices, with Israel’s war on Gaza and the fallout from Houthis’ attacks on shipping diverting freight and fuel around the coast of Africa. The UK year will be dominated by the forthcoming general election, skewing government business, distracting ministers’ attention and making a resolution on Atol reform unlikely.

"Consumer research for this report suggests outbound travel demand should be at least as strong in 2024 as 2023"

There were some notable steps taken to address travel’s need to decarbonise and become more sustainable, including a first transatlantic flight using entirely non-fossil fuel and a heroic attempt to bring every hotel in Turkey (Turkiye) up to Global Sustainable Tourism Council (GSTC) accredited standards.

But there was no step change in progress and broadly the conclusion of last year’s report must stand: “The industry will not be able to rely on demonstrating reductions in its carbon intensity to escape sanctions if total emissions don’t fall.” Total emissions are not falling. The challenge to decarbonise is becoming harder.

Entry for UK travellers to Europe and visitors to the UK will change this year. An EU Entry/Exit System (EES) will be introduced – expected after the Paris Olympics – to register non-EU residents at the Schengen Area border, replacing passport stamping. It could cause delays as visitors will need profiles creating with facial images and fingerprints. This follows the UK’s launch in November of an Electronic Travel Authorisation (ETA), initially for visitors from Qatar. The scheme, costing £10 and valid for two years, will be extended to all non-UK nationals not requiring a visa by the end of 2024.

Consumer research for this report suggests outbound travel demand should be at least as strong in 2024 as 2023. But there is clear evidence of consumers looking to control their spending by travelling outside peak season, reducing holiday durations and so on.

I am once again indebted to Service Science for facilitating the research for this report and to Deloitte and the many Deloitte contributors for their time and expertise.

The sector reaped the rewards of a busy summer 2023. But the travel landscape is evolving, argues Deloitte’s Alistair Pritchard

There was no abating consumers’ appetite for travel in 2023 despite surging inflation and geopolitical instability, as pent-up demand continued to fuel spending on travel. However, 2024 promises a more nuanced and evolving landscape.

There is little doubt the turbulence of the past three years has reinforced consumers’ interest in travel. Moreover, with increasing workplace flexibility becoming more widely accepted, professionals are seeking opportunities to blend work and leisure. This shift is poised to further sustain travel demand while changing the nature of business travel.

With many travel businesses returning to, or surpassing, pre-pandemic passenger volumes, 2023 saw a strong recovery. Net spending in the leisure sector improved for a third consecutive quarter according to the Deloitte Consumer Tracker Q3 2023 and the travel industry reaped the rewards of a busy summer. As the appetite for travel remains, the sector is seeing investment and a trickle of M&A activity.

However, there is the potential for a more conservative approach to travel behaviour in the face of an economic downturn. Consumers will want maximum value for money and may consider options such as all-inclusive holidays or fewer days away. Higher-end travel products could have a better year than budget ones.

"As we navigate the complexities and uncertainties of the post-pandemic world, the travel industry has the opportunity to redefine itself"

On the corporate side, decision-makers face the delicate task of balancing conservative budgeting with the benefits travel can offer. The value of in-person interactions is clearly recognised, but how organisations go about travel is changing as they strive for growth and profitability while reducing costs and CO2 emissions.

Progress on sustainability in the industry has been modest. While corporate responsibility and marketing play a role, consumers’ travel decisions do not tend to reward sustainable practices consistently. Institutional investors and government regulations are the key drivers for change, but the pace is often slow. However, investors are taking sustainability seriously, as market perception can change fast, impacting the top line and asset value.

For travel providers, adaptability is key. Those who can integrate technology to provide personalised and flexible offerings will be at the forefront of meeting the evolving needs of consumers. Technology including artificial intelligence will play a crucial role in enabling businesses to address sustainability and cost targets. Significant investment is expected. Generative AI has the potential to disrupt travel and hospitality, particularly around itinerary generation and hyper-personalisation, and to redefine loyalty by focusing on personalised experiences rather than points-based programmes.

As we navigate the complexities and uncertainties of the post-pandemic world, the travel industry has the opportunity to redefine itself. By embracing innovation, understanding diverse consumer needs and prioritising the delivery of meaningful and personalised experiences the industry can redefine value through experience.

We hope you enjoy this Travel Weekly Insight Report. We look forward to discussing its insights and their implications with you.

Alistair Pritchard, lead partner, Travel and Aviation, Deloitte LLP

RESEARCH PARTNER:

Service Science is a market research agency specialising in the hospitality, leisure, tourism and travel sectors. We work with clients to bring actionable findings, from their customers, people and supply chain, to help improve the customer experience.

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● Think Like Your Customers: using behavioural science techniques, qualitative and quantitative, we provide insight to help understand and influence customer behaviour.

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Clive Nicolaou
Service Science was founded in 2010 by Clive Nicolaou, a market researcher with 30 years’ experience in the hospitality, leisure and tourism sectors.

Prior to that Clive was head of hospitality and leisure at Kantar TNS having previously been a successful operator in the hospitality sector. He is a fellow of the Institute of Hospitality and a member of the Market Research Society.

Tom Costley
Tom is the most experienced researcher in the team with 40 years’ experience in market research from both a client and agency perspective. He has wide‑ranging experience but especially in travel, transport and tourism research.

Prior to joining Service Science in 2018, Tom headed the travel and tourism team for Kantar TNS, the UK market leader in travel, transport and tourism. His client portfolio included national tourism organisations, leading operators, airlines, hotel groups and travel firms. He is a fellow of the Tourism Society.

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Deloitte is an industry leader in the travel and aviation sector.

The team works across the globe on complex, major programmes and projects for some of the industry’s largest companies. Our dedicated team offers a range of integrated services ranging from audit and tax advice to more specialised advisory, corporate finance, strategy, technology and operations excellence, blending deep industry knowledge with core methods and techniques.

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