Charting the right course as travel thrives despite macroeconomic headwinds

Macroeconomic uncertainty and debates about whether we’ll make a “soft landing” or hit a mild recession aren’t keeping travel industry leaders up at night. Influential industry CEOs appear to share a strong optimism, despite macroeconomic headwinds. They believe they can continue their respective growth trajectories. Yet some players will face severe turbulence. The companies that will continue growing will do at least one of the following: Swiftly and intentionally leverage new gen AI technology, continue driving customer value or figure out how to meaningfully move the needle on experiences.

While we’ve seen travel revenue and profits return in the post-pandemic period, travel stocks have underperformed the broader market, raising concerns among analysts about a potential stall to growth. However, research hints that growth will continue, albeit in a more measured way than what we’ve seen in the immediate post-pandemic boom. Skift reports that 50% of travelers plan to increase their travel spending next year. Only 16% intend to decrease it. Additionally, Generation Z consumers rank travel as one of their top-five categories for increased spending in the next 12 months.

Today, travel is perceived as more of a fundamental need than ever before, higher on the hierarchy of needs. It’s becoming increasingly integral to many travelers’ identities. This shift in perception explains why the CEOs of Booking and Expedia have expressed confidence in continued, though slower, growth for their businesses and the travel industry as a whole.

Looking closer, some sectors—particularly the luxury segment—have built-in protection against mild economic headwinds. Marriott’s CEO, Anthony Capuano, has pointed out that its luxury portfolio is expected to continue growing with little sign of a slowdown. The behaviors of wealthy travelers are anticipated to remain consistent unless economic challenges escalate into a full-blown crisis. And while concerns about overtourism remain relevant, the industry is unphased. Scenes from anti-tourist protests in Barcelona, Spain in the summer of 2024 highlight the need for more balance in travel. Yet Airbnb’s Brian Chesky believes the industry can and should incentivize travelers to distribute themselves across more destinations over a longer period rather than scaling back travel altogether.

In short, while the macro landscape is shifting, travel shows no signs of a serious slowdown. The bigger question is: Who within the industry will come out on top?

Not surprisingly, gen AI is a key component of future success, as it appears to be in many industries. In the medium to long term, gen AI is poised to become as much a commodity as the internet. Chesky has observed that, while gen AI will undoubtedly transform our world, the transformation will unfold over a much longer timeline than previously anticipated. Think decades rather than years. Ariane Gorin, CEO of Expedia, echoes this perspective. While she refrains from specifying a timeline, she recognizes the immediate impact of such significant societal changes is often overstated, whereas the long-term impact is frequently underestimated.
 

Despite a slowdown in the initial hype cycle, technology firms are intensifying efforts to advance gen AI tech. Within travel, those who can swiftly harness this technology’s efficiency and effectiveness will distinguish themselves and thrive amid challenging macroeconomic conditions. Notably, some companies are already making significant strides. Expedia continues to test and integrate the capabilities of Romie, its trip-planning chatbot, into its core platform. TripAdvisor has launched a public-facing gen AI review summary functionality that its CEO reports has produced substantial and measurable improvements in performance.
 

Damien Pfirsch of Rocket Travel spotlights several compelling, active use cases that deliver commercial benefits. The introduction of agent-assist chatbots for customer service teams stands out as the most prevalent initial application of gen AI throughout travel and hospitality. These chatbots produce post-call case summaries and substantially reduce handle time, boosting agent efficiency. Other businesses have deployed customer-facing chatbots to address specific queries on property pages, tackling details that might otherwise be elusive—such as pet policies or check-in times. And in marketing, Agoda showcases efficiency by creating a single promotional video about one destination and replicating it for more than 200 locations.
 

Key takeaway: Gen AI is undeniably here to stay. Travel players that can effectively and quickly leverage its benefits will likely see a meaningful impact on both their bottom lines and overall growth trajectories. Their path toward outperforming peers will be easier in the next one to two years.

Across industries, “value” is a term that is both overused and nebulous. Its meaning varies widely across this sector as well, with industry leaders interpreting and delivering value in distinct ways. Booking’s Glenn Fogel champions the “connected trip,” a seamless one-stop-shop for all travel needs. United’s Andrew Nocella recently highlighted his team’s focus on elevating the culinary experience, while Virtuoso’s Matthew Upchurch extols the virtues of personalized service. Marriott banks on its “Moments,” and Airbnb creates buzz with its “Icons” initiative, featuring real-life versions of famous properties such as Barbie’s Malibu Dreamhouse and Pixar’s “Up” house. And of course, loyalty programs are also universally touted as value drivers.
 

Despite these diverse approaches, a common thread is emerging. Successful organizations understand and prioritize their customers’ preferences, be it ease of booking, stellar service or competitive pricing. Customer-centric approaches allow companies to make informed decisions and allocate resources effectively. In today’s hypercompetitive landscape where traveler behaviors can shift rapidly, adaptability is key.
 

Knowing how and when to adapt is critical, so keeping a pulse on evolving customer preferences is paramount to making impactful tweaks to products or services. Organizations that build systems to quickly ladder up direct consumer feedback and use it for strategic decisions will benefit greatly. There are various ways to achieve this. Net Promoter Score (NPS) or similar surveys are treasure troves. It’s important for organizations to analyze real-time feedback to understand key themes and communicate them throughout the organization. Another approach is using customer councils comprised of a cross-section of customers who provide regular feedback, based on careful selection and questioning. Modern market research techniques also offer a quick and efficient way to get a market pulse. Regardless of the method, organizations must not assume they know their customers, as this leads to status-quo inertia that’s difficult to change and unlikely to produce desired short-term results.
 

Key takeaway: The companies that keep their finger on the ever-evolving pulse of customer needs, and quickly pivot to deliver on them, will be the ones that win in today’s hypercompetitive travel industry. 

Experiences are back in vogue across the travel industry, with anecdotal evidence suggesting a 10% to 15% NPS bump from travelers who engage in experiences versus those who do not. The hype is (and was) real. Airbnb is planning to bring experiences back “in a big way,” according to Chesky, while Marriott plans to continue growing Moments. TripAdvisor, owner of Viator, one of the largest platforms for tours and activities, expects ongoing growth similar to the past two years. Booking and Expedia maintain significant tour and activity supply on their platforms, and various other players are entering the space with the intention to disrupt. Yet this burgeoning sector still grapples with deeply unresolved problems.

• The curation problem looms large. How and when should effective curation take place? Should platforms curate at contracting and offer only select supply to their travelers, or should they develop technology to effectively tailor recommendations at the time of booking? Viator’s 750+ Eiffel Tower tour options exemplify a suboptimal booking experience that’s unlikely to yield sustainable success.
• The multiday problem presents another challenge. Large platforms must address the tension between multiday tours, typically booked pre-travel and smaller tours and attractions often booked in-trip or shortly before. There’s also the question of how to bring more supply of multiday, luxury tour business into the digital sphere. Much of this inventory remains absent from major platforms.
• The roles and responsibilities problem raises questions. How should hotels, service desks and local resources contribute to driving and fulfilling experience demand? Industry experts strongly believe that on-the-ground execution is crucial for success.
• The big-event problem challenges the industry to better handle large-scale events. Taylor Swift’s “The Eras Tour” serves as a prime example. Both travelers and locals in tour cities have been “down bad” about prices, congestion and overall chaos. But all of them (and Taylor’s fans) wanted the business. While the impact of such phenomena is undeniable (United Airlines reportedly sees a 25% boost in demand to cities hosting Swift’s concerts), the question remains: How can destinations better capitalize on these larger events in a more sustainable manner?

Takeaway: Experiences don’t have a dominant player today. Anyone with an edge in meaningfully figuring out answers (and not even perfect ones) to these questions stands to disproportionately gain in the next one to two years.

The travel industry will face a real test of its resilience. It needs to embrace cutting-edge tech and customer-centric strategies to overcome economic headwinds. Some players will struggle. Success will belong to those who deftly combine technological prowess with a deep understanding of changing traveler needs to create value-driven offerings that resonate. This dynamic approach will help companies weather uncertainties and position them to thrive in an increasingly challenging and competitive landscape.