A hand with bright yellow nails reaches for the handle of a blue suitcase.
All aboard! After the pandemic upended life and leisure as we know it, travel is roaring back. The industry is set to make a full recovery by the end of 2024, after losing 75 percent of its value in 2020. Much of this has been so-called “revenge travel,” or people embarking on international or bucket list trips that were delayed by the pandemic. But domestic travel is recovering quickly too and is set to represent 70 percent of travel spending by 2030.
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Margaux Constantin is a partner in McKinsey’s Dubai office, Matteo Pacca is a senior partner in the Paris office, and Vik Krishnan is a senior partner in the Bay Area office.
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We’ve done a deep dive into the latest travel trends and how industry players can adjust accordingly in The state of travel and hospitality 2024 report. Check out the highlights below, as well as McKinsey’s insights on AI in travel, mass tourism, and much more.
Learn more about McKinsey’s Travel, Logistics, and Infrastructure Practice.
Who are today’s travelers, and what do they want?
In February and March 2024, McKinsey surveyed 5,000 people in China, Germany, the United Arab Emirates (UAE), the United Kingdom, and the United States who had taken at least one leisure trip in the past two years. Here are six highlights from the results of that survey:
Travel is a top priority, especially for younger generations. Sixty-six percent of travelers we surveyed said they are more interested in travel now than before the COVID-19 pandemic. And millennials and Gen Zers are traveling more and spending a higher share of their income on travel than their older counterparts.
Younger travelers are keen to travel abroad. Gen Zers and millennials who responded to our survey are planning nearly an equal number of international and domestic trips in 2024. Older generations are planning to take twice as many domestic trips.
Baby boomers are willing to spend if they see value. Baby boomers still account for 20 percent of overall travel spending. They are willing to spend on comforts such as nonstop flights. On the other hand, they are more willing to forego experiences to save money while traveling, unlike Gen Zers who will cut all other expense categories before they trim experiences.
Travel is a collective story, with destinations as the backdrop. Travelers both want to hear other travelers’ stories and share their own. Ninety-two percent of younger travelers were inspired by social media in some shape or form for their last trip.
What travelers want depends on where they’re from. Sixty-nine percent of Chinese respondents said they plan to visit a famous sight on their next trip, versus the 20 percent of European and North American travelers who said the same. Respondents living in the UAE also favor iconic destinations, as well as shopping and outdoor activities.
Learn more about McKinsey’s Travel, Logistics, and Infrastructure Practice.
What are the top three travel industry trends today?
Travel is back, but traveler flows are shifting. McKinsey has isolated three major themes for industry stakeholders to consider as they look ahead.
The bulk of travel spending is close to home. Seventy-five percent of travel spend is domestic. The United States is currently the world’s largest domestic travel market, but China is set to overtake it in the coming years. Stakeholders should make sure they capture the full potential of domestic travelers before turning their attention abroad.
New markets such as India, Southeast Asia, and Eastern Europe are growing sources of outbound tourism. Indians’ travel spending is expected to grow 9 percent per year between now and 2030; annual growth projections for Southeast Asians and Eastern Europeans are both around 7 percent.
Unexpected destinations are finding new ways to lure travelers and establish themselves alongside enduring favorites. Rwanda, for example, has capitalized on sustainable tourism by limiting gorilla trekking permits and directing revenue toward conservation.
For a more in-depth look at these trends, check out McKinsey’s State of travel and hospitality 2024 report.
How will AI change how people travel?
In the 1950s, the introduction of the jet engine dramatically reduced travel times, changing the way people traveled forever. Now AI is upending the industry in a similarly fundamental way. Industry players down to individual travelers are using advances in generative AI (gen AI), machine learning, and deep learning to reimagine what it means to plan, book, and experience travel. “It’s quite clear,” says McKinsey partner Vik Krishnan, “that gen AI significantly eases the process of travel discovery.”
For travel companies, the task now is to rethink how they interact with customers, develop products and services, and manage operations in the age of AI. According to estimates by McKinsey Digital, companies that holistically address digital and analytics opportunities have the potential to see an earnings improvement of up to 25 percent.
McKinsey and Skift Research interviewed executives from 17 companies across five types of travel business. Here are three key findings on how travel companies can reckon with emerging technologies, drawn from the resulting report The promise of travel in the age of AI:
Segmentation. Companies can use AI to create hyperspecific customer segments to guide how they interact with and serve customers. Segmentation can be based on a single macro characteristic (such as business versus leisure), or it can be so specific as to relate to just one customer.
Surprise and delight. In the travel context, gen AI could take the form of digital assistants that interact with customers throughout their journeys, providing personalized trip itineraries and tailored recommendations and helping to resolve unexpected disruptions.
Equipping workers better. AI tools can free up frontline workers’ time, allowing them to focus more on personal customer interactions. These tools can also shorten the training time for new hires and quickly upskill the existing workforce.
AI is important, yes. But, according to Ella Alkalay Schreiber, general manager (GM) of fintech at Hopper, “The actual challenge is to understand the data, ask the right questions, read prediction versus actual, and do this in a timely manner. The actual challenge is the human thinking, the common sense.”
How is mass tourism changing travel?
More people are traveling than ever before. The most visited destinations are experiencing more concentrated flows of tourists; 80 percent of travelers visit just 10 percent of the world’s tourist destinations. Mass tourism can encumber infrastructure, frustrate locals, and even harm the attractions that visitors came to see in the first place.
Tourism stakeholders can collectively look for better ways to handle visitor flows before they become overwhelming. Destinations should remain alert to early warning signs about high tourism concentration and work to maximize the benefits of tourism, while minimizing its negative impacts.
For one thing, destinations should understand their carrying capacity of tourists—that means the specific number of visitors a destination can accommodate before harm is caused to its physical, economic, or sociocultural environment. Shutting down tourism once the carrying capacity is reached isn’t always possible—or advisable. Rather, destinations should focus on increasing carrying capacity to enable more growth.
Next, destinations should assess their readiness to handle mass tourism and choose funding sources and mechanisms that can address its impacts. Implementing permitting systems for individual attractions can help manage capacity and mitigate harm. Proceeds from tourism can be reinvested into local communities to ensure that residents are not solely responsible for repairing the wear and tear caused by visitors.
After risks and funding sources have been identified, destinations can prepare for growing tourist volumes in the following ways:
Build and equip a tourism-ready workforce to deliver positive tourism experiences.
Use data (gathered from governments, businesses, social media platforms, and other sources) to manage visitor flows.
Be deliberate about which tourist segments to attract (business travelers, sports fans, party groups, et cetera), and tailor offerings and communications accordingly.
Distribute visitor footfall across different areas, nudging tourists to visit less-trafficked locations, and during different times, promoting off-season travel.
Be prepared for sudden, unexpected fluctuations triggered by viral social media and cultural trends.
Preserve cultural and natural heritage. Engage locals, especially indigenous people, to find the balance between preservation and tourism.
Learn more about McKinsey’s Travel, Logistics, and Infrastructure Practice.
How can the travel sector accelerate the net-zero transition?
Global warming is getting worse, and the travel sector contributes up to 11 percent of total carbon emissions. Many consumers are aware that travel is part of the problem, but they’re reticent to give up their trips: travel activity is expected to soar by 85 percent from 2016 to 2030. Instead, they’re increasing pressure on companies in the travel sector to achieve net zero. It’s a tall order: the range of decarbonization technologies in the market is limited, and what’s available is expensive.
But decarbonization doesn’t have to be a loss-leading proposition. Here are four steps travel companies can take toward decarbonization that can potentially create value:
Identify and sequence decarbonization initiatives. Awareness of decarbonization levers is one thing; implementation is quite another. One useful tool to help develop an implementation plan is the marginal abatement cost curve pathway framework, which provides a cost-benefit analysis of individual decarbonization levers and phasing plans.
Partner to accelerate decarbonization of business travel. Many organizations will reduce their business travel, which accounts for 30 percent of all travel spend. This represents an opportunity for travel companies to partner with corporate clients on decarbonization. Travel companies can support their partners in achieving their decarbonization goals by nudging corporate users to make more sustainable choices, while making reservations and providing data to help partners track their emissions.
Close the ‘say–do’ gap among leisure travelers. One McKinsey survey indicates that 40 percent of travelers globally say they are willing to pay at least 2 percent more for carbon-neutral flights. But Skift’s latest consumer survey reveals that only 14 percent of travelers said they actually paid more for sustainable travel options. Travel companies can help close this gap by making sustainable options more visible during booking and using behavioral science to encourage travelers to make sustainable purchases.
Build new sustainable travel options for the future. The travel sector can proactively pioneer sustainable new products and services. Green business building will require companies to create special initiatives, led by teams empowered to experiment without the pressure of being immediately profitable.
What’s the future of air travel?
Air travel is becoming more seasonal, as leisure travel’s increasing share of the market creates more pronounced summer peaks. Airlines have responded by shifting their schedules to operate more routes at greater frequency during peak periods. But airlines have run into turbulence when adjusting to the new reality. Meeting summer demand means buying more aircraft and hiring more crew; come winter, these resources go unutilized, which lowers productivity. But when airlines don’t run more flights in the summer, they leave a lot of money on the table.
How can airlines respond to seasonality? Here are three approaches:
Mitigate winter weakness by employing conventional pricing and revenue management techniques, as well as creative pricing approaches (including, for example, monitoring and quickly seizing on sudden travel demand spikes, such as those created by a period of unexpectedly sunny weather).
Adapt to seasonality by moving crew training sessions to off-peak periods, encouraging employee holiday taking during trough months, and offering workers seasonal contracts. Airlines can also explore outsourcing of crew, aircraft, maintenance, and even insurance.
Leverage summer strengths, ensuring that commercial contracts reflect summer’s higher margins.
Learn more about McKinsey’s Travel, Logistics, and Infrastructure Practice.
How is the luxury travel space evolving?
Quickly. Luxury travelers are not who you might expect: many are under the age of 60 and not necessarily from Europe or the United States. Perhaps even more surprisingly, they are not all millionaires: 35 percent of luxury-travel spending is by travelers with net worths between $100,000 and $1 million. Members of this group are known as aspirational luxury travelers, and they have their own set of preferences. They might be willing to spend big on one aspect of their trip—a special meal or a single flight upgrade—but not on every travel component. They prefer visibly branded luxury and pay close attention to loyalty program points and benefits.
The luxury-hospitality space is projected to grow faster than any other segment, at 6 percent per year through 2025. And competition for luxury hotels is intensifying too: customers now have the option of renting luxurious villas with staff, or booking nonluxury hotels with luxury accoutrements such as rainfall showerheads and mattress toppers.
Another critical evolution is that the modern consumer, in the luxury space and elsewhere, values experiences over tangible things (exhibit).
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Luxury properties may see more return from investing in a culture of excellence—powered by staff who anticipate customer needs, exceed expectations, create cherished memories, and make it all feel seamless—than in marble floors and gold-plated bath fixtures. Here are a few ways luxury properties can foster a culture of excellence:
Leaders should assume the role of chief culture officer. GMs of luxury properties should lead by example, to help nurture a healthy and happy staff culture, and listen and respond to staff concerns.
Hire for personalities, not resumes. “You can teach someone how to set a table,” said one GM we interviewed, “but you can’t teach a positive disposition.”
Celebrate and reward employees. Best-in-class service is about treating customers with generosity and care. Leaders in the service sector can model this behavior by treating employees similarly.
Create a truly distinctive customer experience. McKinsey research has shown that the top factor influencing customer loyalty in the lodging sector is “an experience worth paying more for”—not the product. Train staff to focus on tiny details as well as major needs to deliver true personalization.
What’s the latest in travel loyalty programs?
Loyalty programs are big business. They’ve evolved past being simply ways to boost sales or strengthen customer relationships; now, for many travel companies, they are profit centers in their own right. One major development was that travel companies realized they could sell loyalty points in bulk to corporate partners, who in turn offered the points to their customers as rewards. In 2019, United’s MileagePlus loyalty program sold $3.8 billion worth of miles to third parties, which accounted for 12 percent of the airline’s total revenue for that year. In 2022, American Airlines’ loyalty program brought in $3.1 billion in revenue, and Marriott’s brought in $2.7 billion.
But as this transition has happened, travel players have shifted focus away from the original purpose of these programs. Travel companies are seeing these loyalty programs primarily as revenue generators, rather than ways to improve customer experiences. As a result, loyalty program members have become increasingly disloyal. Recent loyalty surveys conducted by McKinsey revealed a steep decline in the likelihood that a customer would recommend airline, hotel, and cruise line loyalty programs to a friend. The same surveys also found that airline loyalty programs are driving fewer customer behavior changes than they used to.
So how can travel brands win customers’ loyalty back? Here are three steps to consider:
Put experience at the core of loyalty programs. According to our 2023 McKinsey Travel Loyalty Survey, American respondents said they feel more loyal to Amazon than to the top six travel players combined, despite the absence of any traditional loyalty program. One of the reasons for Amazon’s success may be the frictionless experience it provides customers. Companies should strive to design loyalty programs around experiential benefits that make travelers feel special and seamlessly integrate customer experiences between desktop, mobile, and physical locations.
Use data to offer personalization to members. Travel brands have had access to customer data for a long time. But many have yet to deploy it for maximum value. Companies can use personalization to tailor both experiences and offers for loyalty members; our research has shown that 78 percent of consumers are more likely to make a repeat purchase when offered a personalized experience.
Rethink partnerships. Traditionally, travel companies have partnered with banks to offer cobranded credit cards. But many credit card brands now offer their own, self-branded travel rewards ecosystems. These types of partnerships may have diminishing returns in the future. When rethinking partnerships, travel brands should seek to build richer connections with customers, while boosting engagement. Uber’s partnership with Marriott, for example, gives users the option to link the brands’ loyalty programs, tapping into two large customer bases and providing more convenient travel experiences.
In a changing travel ecosystem, travel brands will need to ask themselves some hard questions if they want to earn back their customers’ loyalty.
Learn more about McKinsey’s Travel, Logistics, and Infrastructure Practice. And check out travel-related job opportunities if you’re interested in working at McKinsey.
Articles referenced include:
“Updating perceptions about today’s luxury traveler,” May 29, 2024, Caroline Tufft, Margaux Constantin, Matteo Pacca, and Ryan Mann
“Now boarding: Faces, places, and trends shaping tourism in 2024,” May 29, 2024, Caroline Tufft, Margaux Constantin, Matteo Pacca, and Ryan Mann
“Destination readiness: Preparing for the tourist flows of tomorrow,” May 29, 2024, Caroline Tufft, Margaux Constantin, Matteo Pacca, and Ryan Mann
“How the world’s best hotels deliver exceptional customer experience,” March 18, 2024, Ryan Mann, Ellen Scully, Matthew Straus, and Jillian Tellez Holub
“How airlines can handle busier summers—and comparatively quiet winters,” January 8, 2024, Jaap Bouwer, Ludwig Hausmann, Nina Lind, Christophe Verstreken, and Stavros Xanthopoulos
“Travel invented loyalty as we know it. Now it’s time for reinvention.,” November 15, 2023, Lidiya Chapple, Clay Cowan, Ellen Scully, and Jillian Tellez Holub
“What AI means for travel—now and in the future,” November 2, 2023, Alex Cosmas and Vik Krishnan
“The promise of travel in the age of AI,” September 27, 2023, Susann Almasi, Alex Cosmas, Sam Cowan, and Ben Ellencweig
“The future of tourism: Bridging the labor gap enhancing customer experience,” August 1, 2023, Urs Binggeli, Zi Chen, Steffen Köpke, and Jackey Yu
“Hotels in the 2030s: Perspectives from Accor’s C-suite,” July 27, 2023, Aurélia Bettati
“Tourism in the metaverse: Can travel go virtual?,” May 4, 2023, Margaux Constantin, Giuseppe Genovese, Kashiff Munawar, and Rebecca Stone
“Three innovations to solve hotel staffing shortages,” April 3, 2023, Ryan Mann, Esteban Ramirez, and Matthew Straus
“Accelerating the transition to net-zero travel,” September 20, 2022, Danielle Bozarth, Olivier Cheret, Vik Krishnan, Mackenzie Murphy, and Jules Seeley
“The six secrets of profitable airlines,” June 28, 2022, Jaap Bouwer, Alex Dichter, Vik Krishnan, and Steve Saxon
“How to ‘ACE’ hospitality recruitment,” June 23, 2022, Margaux Constantin, Steffen Köpke, and Joost Krämer
“Opportunities for industry leaders as new travelers take to the skies,” April 5, 2022, Mishal Ahmad, Frederik Franz, Tomas Nauclér, and Daniel Riefer
“Rebooting customer experience to bring back the magic of travel,” September 21, 2021, Vik Krishnan, Kevin Neher, Maurice Obeid, Ellen Scully, and Jules Seeley
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