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Have luxury travelers finally hit a price ceiling?

After years of shrugging off soaring hotel costs, affluent travelers may finally be showing some. Silvio Rebmann, CEO and founder of Berlin-based Cube Travel, surfaced the issue of high hotel rates during a panel at Preferred Hotels & Resorts' Global Conference 2024 earlier this month.
Have luxury travelers finally hit a price ceiling?

"Though 2024 has started off very good, I do see a shift in the market," Rebmann said. "I find a lot of customers are feeling the pain of increased pricing in markets like Italy, so we now see our customers moving toward [destinations] that offer more value for money."

So far, pricing concerns haven't taken a toll on Namai Bishop's business, but the founder of London-based LuxePrive Travel said that some high net worth clients are similarly shifting their booking habits. Rather than changing to a lower-cost destination, Bishop said, she's noticed some multigenerational groups opt for multi-bedroom villas in lieu of multiple rooms or expansive suites at luxury hotels.

"There [has been] an exponential hike in rates at luxury hotels for two- or three-bedroom suites," Bishop said.

And rather than make compromises on luxury travel, Bishop said some clients are opting to pull back spending in other categories, such as retail.

Bishop's remarks align with findings from this month's Mastercard Economics Institute's 2024 trends report, which found that spending on experiences over material purchases remains prevalent. Spending on experiences and nightlife is at its highest point in five years, according to the report, making up 12% of tourism sales as of March 2024.

The report also underscored elevated pricing across leisure and hospitality, saying that suppliers have to raise prices to keep up with inflation as a surging desire to travel means demand is outstripping supply.

"You have higher prices because costs increase, but you also have higher prices because demand has increased," said Michelle Meyer, Mastercard's chief economist, who added it's not a sustainable cycle.

Although Meyer said "we have not yet hit those levels on aggregate," the Mastercard report did indicate that travelers are already gravitating toward longer trips to more affordable destinations where the dollar goes further, with markets like Turkey, Spain and Portugal seeing an uptick in popularity.

Hotel rates are still rising overall

Hotel rates may not be increasing as rapidly as they were right after the pandemic-era travel restart, but they're still inching upward. And Virtuoso executive vice president David Kolner says high rates aren't likely to go away anytime soon.

The average daily rate (ADR) for Virtuoso's preferred hotel network, which skews toward the high end, hovers around $1,500 to $1,700 per night, a roughly 50% increase from the prepandemic ADR of approximately $1,000 per night.

"People are paying those prices and more," said Kolner, adding that clients with high net worth and ultrahigh net worth demographics continue to prove resilient from a travel spend perspective.

It's the clients that may have exhausted their pandemic-era savings, however, that may rein in their travel budgets, he predicted.

"In the U.S., that phenomenon of excess savings that started during the pandemic is done," Kolner said.

So, I think there's going to be this division, especially in luxury leisure, between high net worth travelers and the people that were maybe aspirational due to their pandemic surge in excess savings."

Rates have leveled off in France, Italy and Greece

In Italy, Greece and France, all three of which benefited from a pandemic-era boom in pent-up demand, luxury hotel rates may have finally leveled off some.

"And that's not necessarily a bad thing, because last year was a record-breaking year," pointed out Kolner. "But Spain, Portugal and Germany are all doing really great with year-over-year growth, and we know those places [are perceived] as having better value for money in general, even before the pandemic. So, maybe people are going other places. But they're also not not going to Italy."

Hotel rates across Europe are being tracked by tour operators like Collette, with spokesperson Samuel LaFrance reporting that the company is anticipating more price hikes in 2025-26.

Collette usually negotiates hotel rates at least a year in advance to keep costs down, said LaFrance, who added that continued increases could prompt some traveler pushback over the next two years.

"They will be more conscious about where to travel, for how long and what type of arrangements they will choose," he said.

A result, LaFrance said, could be a boost to Collette's U.S. tours.

"If Europe becomes more expensive, [travelers] might rethink and look at our U.S. tour portfolio and travel with us in the U.S.," LaFrance said.

By Christina Jelski; By Nicole Edenedo

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