The year 2023 started like any other New Year! It is typically a time when people contemplate a resolution, a reset, or even a complete change in mindset. This begs the question: should we, as an industry, be considering a new mindset on how we move forward? After all, the pandemic changed the face of our business. No one could have predicted the world shutting down in March 2020 and the hotel industry having to effectively rewrite its playbook to survive.
We are in a new world travel order as we enter 2023. Zoom is not disappearing, and the face of business travel is quite different than before. Many people are still working remotely, and I am not sure if many companies will ever go back to a five-day, in-person work week, which gives some employees the freedom to work from literally anywhere. Consumers continue to travel for leisure, as digital nomads, for health and wellness breaks, bucket list trips, or family reunions – the list, if anything, keeps growing. The Economist Intelligence is projecting global tourism to rise by 30% in 2023.
This past cycle has made it clear to us that we needed to create a new playbook as the old one no longer works. Our industry saw travel come to nearly a complete halt, but the recovery was also more aggressive than expected, primarily due to leisure travel driving demand. Business travel has become far more purposeful for companies and individuals, while labor has been, and will continue to be, a significant challenge for our industry, as well as many other industries.
3 Market Dynamics To Watch In 2023
Several primary factors will continue to affect the overall economic outlook, including how we learn to live in our new COVID world, not to mention inflation.
1. Covid remains with us
China recently changed its COVID policy and, as of January 8, 2023, will be dropping its strict quarantine requirements for incoming travellers. This change has created many concerns throughout the world, though, particularly considering the high rate of infections China is experiencing since ending the ‘zero COVID’ policy. Many countries, including the United States, will require all travellers from China to have a negative COVID test before entering the country.
Bernard Baumohl, Chief Global Economist, The Economic Outlook Group, LLC, pointed out at last Fall’s Lodging Conference that '32% of the world’s population was not vaccinated at all as of September 7, 2022'. The bottom line is we need to understand that COVID is not going away, and we need to figure out a way to mitigate the risk while continuing to live, work, and, of course, travel.
2. Inflation is impacting consumer spending
Higher interest rates, inflation concerns, and what that means for consumer spending and saving habits will continue to be topics of conversation throughout 2023. In a recent HotelNews Now video Jan Freitag, National Director of Hospitality, CoStar, said:
We had strong ADR growth in 2022, but the sharp cost increases ate up most of the profits. Challenges with labor shortages look set to continue, with hourly wages for hotel staff only increasing; and without an increase in workers, existing employees will be putting in longer shifts in the year ahead. STR predicts a mild recession in 2023, which does not paint an entirely rosy picture.
3. Pent-up demand for travel will continue
During the aforementioned video, Adam Sacks, President of Tourism Economics, emphasized that what keeps him up at night when he thinks about 2023 is consumer debt and how that might have the potential to undercut leisure markets combined with eroding purchasing power as a direct result of inflation. However, Sacks remained somewhat optimistic about the hospitality industry outlook because his firm sees lodging demand continuing to grow in 2023, even in the face of a mild recession. After all, there is continued momentum in bookings and intent to travel; household balance sheets have a low debt service rate and significant savings. In fact, Sacks shares that there is ‘$1.7 trillion remaining in accumulated savings from the last 2 1/2 years concentrated in the upper half of income earners, who are our main travellers’. In addition, sentiment data for travel indicates ‘people are still prioritizing services, experience, and travel over goods’. This demonstrates that the pent-up demand we have been seeing is not going away.
As we move into 2023, we need to continue refining our new playbook to meet travellers where they are today and not where they were in the past. As an industry, we need to offer experiences and top-notch service to our guests in the hope that they continue to prioritize travel and services over consumer goods. The bottom line is we need to look at and analyze the data to truly understand the changes that have occurred in consumer behavior. This will enable us to adapt and update our model for this new world.