- Boom returns to global tourism and hospitality industry
- Domestic travel to grow 3%, reach 19bn lodging nights 2030
- International travel to ramp up to 9bn nights
- Roughly 9% of this year’s global GDP.
PHILLIP ISAKPA IN LONDON, UK
The global tourism and hospitality industry will close the year on a very high note as spending on world travel is expected to reach $8.6 trillion in traveller outlays in 2024, McKinsey, the global management consultancy firm has stated in a new analytical report seen by Business a.m.
The huge amount projected to be spent on global travel by the end of 2024 will represent roughly nine percent (9%) of this year’s global GDP (gross domestic product), the McKinsey report titled “The State of Tourism and Hospitality 2024”, noted.
By the end of the year travel worldwide is expected to fully recover after it went down 75 percent in 2020 as a result of the Covid 19 pandemic, paralysing tourism and hospitality globally, a position from which a slow but financially painful recovery has been climbing back up in the last four years.
A further breakdown, however, shows that there would be growth in both domestic and international travels. A projection to 2030 shows that a three percent annual growth in domestic travel will see lodging nights reach 19 billion per year while international travel maintains its historical average growth pattern to reach nine billion lodging nights annually by 2030.
The report found global travel to be “back and buzzing” and noted that “more regional trips, newly emerging travellers, and a fresh set of destinations are powering steady spending,” creating an environment for tourism and hospitality to soar on the back of new travellers, destinations, and trends.
“Tourism and hospitality are on a journey of disruption. Shifting source markets and destinations, growing demand for experiential and luxury travel, and innovative business strategies are all combining to dramatically alter the industry landscape,” experts at McKinsey wrote.
They observed that people still love to travel and will continue to seek new experiences in new places. “But where will travellers come from, and where will they go?” The report asked.
A snapshot of current traveller flows, along with estimates for growth through 2030 that McKinsey developed enabled it to divide the world into four regions, namely, the Americas, Asia, Europe, and the Middle East and Africa, for the purpose of the report and to establish the trends shaping the industry.
McKinsey noted four major themes in the report and called on stakeholders in the tourism and hospitality industry globally to consider and strategise on them, given the momentous change that is taking place in the industry.
The global management consultancy firm identified these major themes shaping the industry currently as: (1) that the bulk of travel is now close to home; (2) that consumer increasingly prioritise travel; (3) that the face of luxury travel is changing; and (4) that as tourism grows, destinations will need to prepare to mitigate overcrowding.
According to the report, while international travel might draw headlines, stakeholders in the tourism and hospitality industry shouldn’t neglect the big opportunities in their backyards as domestic travel still represents the bulk of travel spending, adding that intra-regional tourism is on the rise.
Secondly, it noted that consumers are increasingly prioritising travel on the grounds of “when it is on their own terms”.
“Interest in travel is booming, but travellers are no longer content with a one-size-fits-all experience. Individual personalisation might not always be practical, but savvy industry players can use segmentation and hypothesis-driven testing to improve their value propositions. Those that fail to articulate target customer segments and adapt their offerings accordingly risk getting left behind,” the report stated, while also warning stakeholders in the industry under the same breath.
For the third theme, McKinsey observed that demand for luxury tourism and hospitality is expected to grow faster than any other travel segment today, particularly in Asia.
It however pointed to the fact that the face of luxury travel is changing, stressing that “it’s crucial to understand that luxury travellers don’t make up a monolith. Segmenting by age, nationality, and net worth can reveal varied and evolving preferences and behaviours,” in responding to the changing face of luxury travel.
With the expected full travel recovery will come growth in the number of people moving from source to destinations around the world. The McKinsey report said the fourth theme for stakeholders to be mindful of is recognising that as tourism grows, destinations will need to prepare to mitigate overcrowding.
“Destinations need to be ready to handle the large tourist flows of tomorrow. Now is the time for stakeholders to plan, develop, and invest in mitigation strategies,” the report authors wrote.
They added that equipped with accurate assessments of carrying capacities and enhanced abilities to gather and analyse data, destinations can improve their transportation and infrastructure, build tourism-ready workforces, and preserve their natural and cultural heritages.”
A further deep dive into the report shows that consumer preference for proximity is further fuelling the growth of domestic travels and luxury.
According to McKinsey, data shows that the United States is the world’s largest domestic travel market at $1 trillion in annual spending, with 68 percent of all trips that start in the United States remaining within its borders.
The US is followed by China with a domestic travel market size worth $744 billion, and currently the world’s second largest.
“Chinese travellers spent the pandemic learning to appreciate the diversity of experiences on offer within their own country. Even as borders open back up, Chinese travellers are staying close to home. And domestic destinations are benefiting,” the report stated, adding that the country’s domestic travel market is expected to grow 12 percent annually and overtake the United States’ to become the world’s largest by 2030.
The report also drew attention to India, currently the world’s sixth-largest domestic travel market by spending, and described it as another thriving area for domestic travel.
“With the subcontinent’s growing middle class powering travel spending growth of roughly 9 percent per year, India’s domestic market could overtake Japan’s and Mexico’s to become the world’s fourth largest by 2030,” it predicted.
McKinsey observed that it is in recognition of this general trend that stakeholders have been funnelling investment toward regional tourism destinations. Accordingly, an Emirati wealth fund, for instance, announced its intent to invest roughly $35 billion into established hospitality properties and development opportunities in Egypt.
Also in Africa, the report noted that Ethiopian Airlines is facilitating cross-border travel to major regional tourist sites through improved air connectivity.
On how tourism and hospitality stakeholders can further capitalise on domestic and intra-regional travel demand on the back of travellers’ preference for proximity, McKinsey offered the following strategies:
- Craft offerings that encourage domestic tourists to rediscover local gems. Destinations, hotels, and transportation providers can encourage domestic tourists to integrate lesser-known cultural landmarks into their trips to visit friends and relatives.
- Fold one-off domestic destinations into fuller itineraries. Route 66 in the United States is a classic road trip pathway, which spurs visits to attractions all along the highway’s length. Tourism stakeholders can collaborate to create similar types of domestic itineraries around the world.
- Make crossing borders into neighbouring countries seamless. Removing logistical barriers to travel can nudge tourists to upgrade a one-off trip to a single attraction into a bucket list journey across multiple, less-trodden destinations.
The report also showed that source markets for tourism and hospitality are shifting, but noted that the United States, Germany, the United Kingdom, China, and France remain the world’s five largest sources of travellers, in that order, adding that they collectively accounted for 38 percent of international travel spending in 2023 and are expected to remain the top five source markets through 2030.
In terms of spending, the McKinsey report also indicated that American consumers rank international and domestic travel as their highest-priority areas for discretionary spending.
It also said travel spending by Europeans paints a slightly rosier picture, with roughly five percent projected annual growth.
The shift in source markets in the industry is particularly so because new groups of travellers are emerging, the report showed.
“India’s breakneck GDP growth of 6 percent year over year is bolstering a new generation of travellers, resulting in a projected annual growth in travel spending of 9 percent between now and 2030,” the report noted.
The report also pointed out Rwanda’s ongoing investment in infrastructure aimed at becoming a major African transit hub, facilitated by Qatar Airways’ purchase of a 60 percent stake in the country’s major airport.
“Rwanda has also successfully capitalised on sustainable tourism: by charging $1,500 per gorilla trekking permit, for instance, it has maximised revenue while reducing environmental impact,” the report pointed out.
