Industry Perspectives: Looking Ahead for the Travel Industry

Over the last several weeks, many travel businesses released their Q4 earnings and shared their latest expectations. These insights and perspectives help us understand how some of the largest travel corporate players are viewing the state of the economy and its impact on the travel industry as well as the main factors they are monitoring that may hinder their continued growth.   

Despite continued inflation, the overall labor market remains on solid ground and consumers continue to spend. In the near-term, an impending recession is looking less and less likely. Most travel industry CEOs are extremely optimistic and are finally looking beyond 2019, focused on future growth opportunities rather than recovery. 

Recent quarterly insights and trends shared with members reiterated many of the same themes heard throughout Q4 earning reports.

Here is a deeper dive into their perspectives. 

Ending the year strong

Despite economic concerns, nearly all travel organizations reported solid fourth quarter growth—and in some cases higher than 2019 levels. 

United Airlines CEO Scott Kirby reported stronger than expected fourth quarter profit as consumers continued to shell out for airline tickets despite broader economic worries. Demand for air travel is still outpacing the industry’s ability to meet it, airline executives have said, citing delayed plane deliveries, training backlogs and other constraints. Strong demand has helped keep airplane seats packed and fares relatively high.

Delta Air Lines, CEO Ed Bastian said “I’ve never seen a more constructive backdrop for the industry. Demand remains strong as passengers return to the skies.”

And airline executives have said there isn’t evidence of a slowdown. United said it expects its revenue in the first quarter to be 50% higher than the same period last year. 

Marriott International, CEO Tony Capuano: “2022 was a very strong year for the company. After achieving global RevPAR recovery in June, we finished the year on a real high note. It is abundantly clear that people love to travel.”

And many executives remain optimistic for what’s ahead.

Hilton Worldwide, CEO, Chris Nassetta: "As our performance demonstrates our team members have proven that we can handle whatever comes our way and because of our hard work and discipline, we are incredibly well positioned for the future, with the pivotal moment with great opportunities ahead and a new golden age of travel. And we're more confident than ever that our team is pleased to deliver in 2023 and beyond."

Host Hotels CEO Jim Risoleo: “While macroeconomic headwinds continue to dominate the headlines, we remain optimistic about the state of travel for several reasons. First, although leisure rates are moderating, they remain well above 2019 levels. Second, in the fourth quarter, we booked 400,000 group rooms for 2023. Third, while business transient demand has been uneven, revenue driven by this segment improved in Q4. Small and medium-sized businesses are driving the business transient recovery, and they represent a larger share of our corporate demand today.”

Avis-Budget CEO, Joe Ferraro: “Overall, the Americas had a great quarter and a terrific year, and we see positive trends going into January and February. Demand is strong and forward-looking reservations show this and our price discipline we saw in the fourth quarter is continuing into the first [quarter].” 

Marriott International, CEO Tony Capuano: “Lodging is a cyclical business and it’s not immune to downturns in the macroeconomic environment. To date, however, we have not seen signs of demand softening.”

Higher costs, labor and supply chain shortages continue to constrain growth.

Despite continued growth, delayed deliveries of new planes, outdated technology infrastructure and logjams in hiring and training pilots hindered airlines’ ability to grow last year and are likely to impact capacity and pricing power in the coming months. Still, most airlines are aiming to return to 2019 capacity levels by the summer. 

While positive for employees, also driving up labor costs and putting pressure on profits, some airlines, including Spirit and Delta plan to increase pay and negotiate new contracts for pilots and other employees to retain higher quality labor. 

In addition to increased labor costs, travel organizations were negatively impacted by increased costs across the board.

Disney plans to reorganize the company to primarily reduce costs and improve efficiency. 

Disney CEO Bob Iger commented: “This reorganization will result in a more cost-effective, coordinated and streamlined approach to our operations, and we are committed to running our businesses more efficiently, especially in a challenging economic environment. In that regard, we are targeting $5.5 billion in cost savings across the company, including reducing the workforce by approximately 7,000 jobs.”

Avis-Budget CEO, Joe Ferraro: We continued to focus on cost discipline and deliver results that showcase the streamlined and lean operating structures we built during the pandemic. We are keenly aware of the inflationary pressures we face in 2023 and will continue to combat rising costs with sustainable productivity gains driven by technology and data.

Hertz CEO Stephen Scheer said Hertz's profitability had been pressured as it incurred high maintenance costs to address out-of-service levels. Rising costs and supply shortages faced by automakers have made it more expensive for car buyers in an uncertain economy.

Leisure travel is still the main driver of growth but business travel—particularly group is gaining momentum.

Hilton Worldwide, CEO, Chris Nassetta: We don’t see leisure slowing down. On the business-transient side, there’s still strong and growing demand, even pent-up demand. And on the group side, we finished the second half of last year with people getting more comfortable and planning events like crazy. The economics of supply and demand are just really good.

While leisure travel continues to drive rates, group business saw the biggest quarter-over-quarter improvement, with RevPAR fully recovered to 2019 levels. Group bookings now are up 23% year-over-year and nearly back to 2019 levels.

IHG CFO, Paul Edgecliffe-Johnson highlighted that the U.S. leisure demand has sustained, and business travel demand recovery continues to improve. “The momentum behind leisure travel has not subsided, with both occupancy and rate outperforming 2019 in the fourth quarter. We have not seen any indication that demand or pricing power is waning.”

Business demand continued to pick up steadily through the year…rates surpassed 2019 levels in March, occupancy recovered to within 98% of 2019 levels in the fourth quarter…despite some predictions, business travel is alive and well.

Delta Air Lines: Corporate travel demand was steady through the quarter, with corporate domestic sales 80% recovered to 2019 levels. We expect Q1 2023 revenue to be up 14% to 17% higher versus 2019. 

And [results were positive] in a recent corporate survey, with 96% of respondents expecting to travel as much or more in Q1 than Q4, led by financial services. The new year bookings reflect the survey optimism and are accelerating.

Marriott International, CEO Tony Capuano said that demand for leisure travel in the U.S. held strong, and group travel topped pre-pandemic levels. Demand for business travel was nearly 90% recovered to pre-pandemic levels as companies sent their employees on the road once again. 

Travel by workers from large employers is still recovering more slowly than smaller businesses. Yet, overall demand for business travel is trending positively, even amid layoffs and belt-tightening in some sectors such as technology.

Group revenue, which includes conferences, weddings and other large gatherings, is pacing 20% above 2022 levels this year, boosted by both more bookings and higher prices. 

Choice Hotels CEO, Pat Pacious: We’ve been highlighting consumer and industry trends that are driving a significant uptick in travel demand. And we’ve made deliberate investments to reap the benefits from them. Specifically, we are capitalizing on long-term fundamentals, such as remote work, retirements, rising wages and the reshoring of American manufacturing. We see these trends as strong tailwinds for our company’s long-term growth. 

Looking ahead, our optimism is further reinforced by the strengthening of our business transient and group segments. In 2022, we drove year-over-year increases in our business travel bookings. At the same time, the revenue generated from our business managed accounts more than doubled when compared to 2019. We expect business travel in our key industry verticals to increase, fueled by the onshoring of the U.S. supply chain and significant nationwide investments in infrastructure.

Avis-Budget CEO, Joe Ferraro: The [fourth] quarter showed strong commercial demand. In fact, it was the highest amount of commercial volume we have seen during the fourth quarter in company history and well above levels we achieved in 2019. It's apparent that the commercial customer is traveling and using our brands at an elevated level. 

International is rebounding but still has a way to go.

Hilton Worldwide CEO Chris Nassetta: The international markets are opening up. And people…across the world are traveling. [While] Asia Pacific is opening up…it will take a little bit more time, as we saw in Japan in the fourth quarter. …we are already starting to see significant travel within China and we expect a big tailwind from there…. particularly, in the second half of the year. 

Marriott International issued upbeat guidance for this year as the recovery of cross-border travel, the reopening of China and recovery of business trips are expected to sustain demand.

Delta Air Lines CEO Ed Bastian reported that international recovery is well underway although revenue continues to be led by the trans-Atlantic. We are seeing robust demand across our expanded footprint in Europe and expect the spring and summer to set new record revenues.

China remains a big question market. We're not going to get ahead of ourselves in terms of capacity and publish a schedule for the summer that we don't know if we can fly, and we don't know if the demand will be there. So, we'll let demand drive what we're going to fly in China.

“We're going to be very mindful to see how demand warrants and how this opens up. In terms of international demand for 2023 we just don't know yet.”

SeaWorld Entertainment, CEO, Marc Swanson: “Though attendance of 21.9 million guests in the fiscal year topped 2021′s figure, lagging international visitor totals and bad weather kept SeaWorld from reaching pre-pandemic 2019 numbers…. Excluding international guest visitation, attendance increased by approximately 10% when compared to the fourth quarter of 2019.”

IHG CFO, Paul Edgecliffe-Johnson remarked that: “Greater China saw significant volatility during 2022. But the recent relaxation of travel restrictions is leading to a rapid return of demand, and we expect to see a much stronger performance in 2023.”

And Malaysian based Resorts World on the global economy:

“The slowdown in the global economy is expected to persist as tightening monetary policy conditions aimed at managing inflationary pressures and continued disruptions from ongoing geopolitical conflicts are expected to continue weighing on economic activity. International tourism is expected to rebound to near pre-pandemic levels in certain regions, although prevalent challenges in the global environment could delay its recovery. In line with the improving optimism surrounding international travel, the broad-based recovery of the regional gaming sector is expected to remain intact, aided by the re-opening of key markets and pent-up demand.”