Is There Another Shoe About to Drop?
The headline on the front page of the U.S. print edition of the Financial Times this past Saturday read “Travel Boom as holidays come first. Record profits for airlines. Bookings defy high fares. Spending buoys global economy.” It’s one of many articles I keep reading about record high demand and commanding prices. Indeed, we seem to be in a boom time, despite the sense of unease about the global economy — here in the U.S., positive economic news is tempering concerns about a potential recession, but there’s still plenty of anxiety. The question is how long the good times will last.
Travel Weekly put that question to a number of industry figures recently, wondering whether we’re seeing “a short-term reaction to the pandemic, the beginning of a long pendulum swing that will eventually reverse, or a more permanent change in the consumer mindset.” And while no one has a crystal ball to find the answer, I did ask Chandler Mount, whose Affluent Consumer Research Company surveys wealthy U.S. consumers about their sentiments and behaviors (and whose research I frequently cite in this newsletter), about the trends he’s seeing. Below, I share some of his more interesting findings.
The Numbers: Up, Up, Up
Affluent Consumer’s most recent survey was fielded in May and June and had just under 500 respondents, with an average age of 46, an HHI of $500,000, and a net worth of $5.6 million (excluding their primary residence). The study represents some 6.6 million U.S. households and 18.6 million individuals.
More than one quarter plan to spend money on a luxury-branded hotel or resort in the next three months; only beauty/skincare, wine, gourmet food, and fashion scored higher. Around 18% said they plan to purchase a luxury cruise or yacht vacation, and the same proportion plan to buy a first- or business-class airplane seat. Those numbers have risen slowly but steadily over the past 12 months — affirming the continued importance of the U.S. consumer to the travel industry.
Some Signs of Caution
The affluent do feel some ambiguity about the economy overall. The number of respondents who say that the economic environment is making purchasing travel risky right now has risen to 65% from 60%. On the other hand, concerns that a recession will occur in the next six months are easing, down to 61% from a peak of 69% in Q4 2022. And their overall financial confidence is up, as is their likelihood to continue spending on luxury goods and services, and on luxury travel in particular. For holiday travel specifically, 54% plan to spend at least $10,000 per person. Separately, the FT reports that the breakneck growth in sales of luxury goods seems to be slowing ever so slightly, especially in the U.S.
“Travelers are confident and continue to spend when they want,” Chandler says. “They do have concerns — but these are usually ever-present for the wealthy. The more money they make, the more they spend, and there is an inherent concern that everything could go away. That said, travel providers whose generous cancellation policies give them an ‘out’ in case of personal trouble would fare better than those whose terms are stricter. More than two thirds (67%) are planning their holiday travel with an eye on cost as well as their experience. Granted, Very High Net Worth (more than $5M) and Ultra High Net Worth ($50M) are less impacted by this trend than others, with 30% and 42%, respectively, prioritizing luxury travel regardless of cost.”
That observation aligns with what I’ve been hearing anecdotally: That while the rich are still spending freely, a bit more cautiousness has been creeping in lately — a gradual return toward “normal” spending habits. For example, Nikheel Advani, COO of Grace Bay Resorts in Turks & Caicos, was just telling me that sales of high-end wines at their hotels, which were sky-high just a year or so ago, have begun to come back down to earth.
Another thing to note is the growing gap between travel pricing and service delivery. In Affluent Consumer’s survey, 73% agreed that there’s a disconnect, up from 66% in Q3 2022. This is something that I’ve heard backed up anecdotally, and it is certainly something to watch. “It’s inconsistent: Some hotels are absolutely able to deliver a first-quality product, while others are missing the boat,” Tim Krenzien of Paul Klein Travel in Chicago, recently told me. “With prices sometimes double or triple what they once were, expectations are considerably higher, and hotels that can’t provide a high level of service are becoming an issue.”
Where Is Everyone Going?
One interesting development is a robust interest in more “out-there” experiences that put people closer to nature. More than a quarter of the affluent signaled their interest in glamping and upscale lodges, a trend led by VHNW and UHNW consumers. “Our data further supports this trend as ‘Lifestyle’ luxury consumers (those who live and breathe luxury) associate terms like natural, organic, justified, sustainable, and unpretentious as describing an ultra-luxury experience,” says Mount. “On the other hand, ‘Basic’ luxury consumers (those who see luxury as an indulgence or save it for very special occasions) associate ultra-luxury with more traditional indicators, like sophistication, elegance, and rarity. It is a sea change in luxury and a very big story.”
Interest in Europe is maintaining its very high rate. It’s the top destination among the affluent, with 43% saying Europe will be one of the next three international destinations they visit. That’s despite frequent news reports about Europe being overcrowded this summer (not to mention overheated). And with the Paris Olympics coming up — tickets sales have already broken some records — it seems next summer will be even busier.
Asia is still playing catch-up; indeed, it is falling a bit behind. Last year, the affluent named Asia as one of the next three destinations they plan to visit, double the number for the Middle East. Now, those positions have switched, with the Middle East at 8% and Asia essentially tied at 7%. Asian destination marketing organizations need to emulate their peers such as the United Arab Emirates and Saudi Arabia, whose sophisticated campaigns seem to have been very successful.
Cruising Is Full Steam Ahead
Cruise is healthy overall, with 82% of the affluent signaling interest in purchasing a luxury cruise vacation in the next 12 months. The Cruise Lines International Association expects the industry to beat its 2019 numbers later this year, and the industry seems to be successfully attracting younger customers who have never cruised before — key to its continued growth.
Aiding that increase is the rise in expedition cruises, which many major lines (Viking, Silversea, Ponant and Seabourn among them) have invested in heavily, hoping to attract younger, new-to-cruise passengers and convert them to other types of luxury cruising. That gambit seems to be paying off: 63% of survey respondents who have taken an expedition cruise say they are more interested in regular cruising as a result. However, 71% say they’re more likely to board another expedition ship for their next sailing than a traditional cruise.
Overall, the news remains very, very good. But will the numbers continue to soar? There are a few reasons to temper our expectations. In my opinion, service delivery is the number one issue we need to keep an eye on: The travel advisors I’ve been speaking with recently say it’s the subject their clients complain about the most. At a certain point, pent-up demand will ease and frustration with price inflation will lead more affluent consumers to question the value of their travel purchases.
What about you? Is your business still booming or are you seeing some leveling off? What do you hear about service delivery issues? Let’s keep the conversation going!