Will Rates Hold—and Could There Be a Consumer Breaking Point?

By Matt Turner Aug 31, 2023 9:30am

Far be it from me to tell you how strong the luxury travel industry is right now—you all know firsthand how it’s going.

Backing that up, however, Virtuoso reported at its annual Travel Week in Las Vegas this month that year-to-date global sales have surpassed those of 2022 for the same period by 37 percent and are up 56 percent over the “high-water mark” set in 2019. Cruise, destinations and experiences, hotels, and services are all performing better than last year. (Only air travel—at 94 percent of 2022’s numbers—are down.) In addition, 2024-25 sales are up 39 percent over 2022 (107 percent over 2019).

What’s perhaps more impressive is the price travelers are paying for these experiences. Average daily rates (ADRs) at hotels are up 82 percent over 2019 levels across all U.S. hotels. Rates are up 100 percent (aka doubled) when it comes to international hotels.

“Rates for 2019 have just been completely left in the dust because there's so much demand,” said Misty Belles, vice president, global public relations, Virtuoso.

Looking forward, Virtuoso has found that hotel ADRs will be sustained—even rising slightly—into the fall and festive season. The luxury travel agency network shared that sales for fall are up 47 percent versus 2022; bookings, however, are up 36 percent, showing the higher price travelers are paying for their vacations. That said, rates during festive season appear to level off as sales and bookings are up an equal 17 percent over 2022.

The top cities for fall travel include Paris, London, Florence, Rome and New York. Hotel rates in those cities are anywhere from 11 to 37 percent higher than 2022 levels. For festive, the top destinations include Cabo San Lucas, Kohala Coast/Kailua-Kona, Providenciales, Wailea and London. ADRs for these locales are up between 8 and 54 percent (with three of them up over 44 percent) compared to 2022.

Added Belles: “We know that [clients] are traveling, and we know that they're willing to pay for it.”

But can this continue?

According to Rebecca Masri, founder of London-based Little Emperors & Co., her younger clients are not showing as much rate resistance as she expected. They are, however, altering the way they travel because of price. “We've definitely seen an increase in demand for shorter trips, shorter lengths of stay,” she says.

While it’s a newer trend that’s likely a response to rising ADRs, it shows “they still want to travel.”

Masri noted it’s important to consider it’s not just travel that’s increasing in cost—it’s everything. “The rates of everything are going up ... My supermarket has gone up, my dog food has gone up; everything has gone up. And I think it's sustainable whilst it's happening everywhere; I don't think the hotel rates are suddenly going to drop and everything else continues to rise. I think they will rise proportionately with each other.”

Paul Tumpowsky, founder and CEO of Skylark Travel Group, Inc., on the other hand, is expecting more movement going forward. Currently, demand is high and, therefore, rates are as well. But there is a lot of product coming into the market and fluctuations could exist when there's weakness in a market because hotels are “just going to have to deliver the room nights in the end.”

As for now, however, Tumpowsky reports a split in his clients’ spending. “We're seeing a little bit of a bifurcation though across our client base, where ultra-high-net worth clients are continuing to spend, but there is a little bit more of a search for value in our younger customer set,” he says.

As for Jamsheed Pocha, co-founder Toronto-based The Pelican Club, he sees just one scenario when hotel pricing might come down. “The only place where I see a correction happening is the pricing where properties are following along with the competitors that have better product,” he says. These hotels, Pocha adds, need a reality check. “Eventually the consumer is going to say the difference between that hotel and this hotel is substantial.”

When the customers catch on, as he says, the hotels matching rates of the better properties will certainly struggle should they maintain their rates.

Along those lines, Masri says that client expectations need to “realign a little bit.”

“As the price has gone up—significantly, in luxury—I think the expectation has similarly gone up but, in fact, people might be getting less than what they had prior,” says Masri. “We've actually seen more complaints this year than we had normally received around service,” which is a combination of increased rates and decreased staff, resulting in a lack of expected service at a higher cost.

Certainly, that could become an issue if it continues. But whether there will a true breaking point among travelers, Matthew Upchurch, chairman and CEO, says “it's hard to fully predict.” He does add, however, that there certainly could be tension when properties consistently fail to deliver an expected level of service.

Will Rates Hold—and Could There Be a Consumer Breaking Point?

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