Yes, There's Crazy Travel Demand Today. But What's Next?

I'm going to lead with a brag. The MMGY Travel Intelligence team saw this coming. The snapback recovery, led by the US leisure market, as well as the well-heeled consumer willing to pay high prices to travel this Summer. I'm very proud of the team for preparing our clients properly for this less-than-consensus view. And we think more good times are ahead, but not in the same way that exists at this very moment.

The current market conditions have caught many travel brands by surprise, while economic and travel experts are now scrambling to update their point-of-view after traditional predictive tools failed to identify the pace of demand triggers.

And it's relatively easy to understand why this recovery varies from those in past crises. There are three primary reasons: consumers gripped by uncertainty and fear did not fully understand how quickly they would return to travel, thus misleading traditional survey-based research; the vast majority of travel households ($75,000+ HHI) actually improved their financial situation during the pandemic; and new work-from-home (WFH) - or what our team calls work-from-vacation (WFV) - conditions have offered historical flexibility for the working public to mix leisure and business travel. One caveat, these improving conditions are not in place everywhere - we see you Australia, Canada and most especially Boris Johnson/UK - where there are still inexplicable restrictions in place. South America as well as places such as India are exceptions as vaccine progress must be made before travel can recover.

So, US leisure travelers are filling hotels, airplanes, restaurants and attractions even though still lower-than-needed capacities and service levels exist in many places. All of this equates to what we have written about as reverse compression.

And for those still calling for commercial travel to lag significantly in this recovery, we think you're wrong too. I continue to see calls for RevPAR, travel spending and trip levels to remain below 2019 into 2024-25. In our research, we see 2022 business travel intent to be extremely strong. While corporate FIT has been slower to materialize, a harder-to-measure unmanaged business travel is taking shape. And although we expect some of these demand patterns to modify into a more regional and lower-spend environment over the next 12 months, we actually think volumes will be at historically high levels. In the medium-term, as companies look to connect remote workers, engage customers and invest in new growth, a more organic commercial travel demand will lead, followed by loosening corporate policies that permit a more complete business travel recovery.

And this is the challenge for revenue managers, operations teams and marketing groups. You can't rely entirely on the traditional signals to either validate recovery or inform sales and marketing plans. It's almost better to apply anecdotal evidence, or even some gut instinct, to gauge where the market is headed and to be sure you are seeding markets and customer groups for long-term strength that protect and grow market share. An example of forward thinking pandemic investments came from two of the world's largest hotel operators, Wyndham and Choice, who propped up sales teams, client-facing initiatives and franchise support tools to ensure long-term performance.

So what are some short and long-term conditions we think are worth considering.

1) Destination domestic leisure demand will normalize in 2022 - the almost irrational desire to travel this Summer and Fall have been a welcome salve for travel recovery. High rates and fares have allowed operators to improve balance sheets without fully available capacities. But impaired service levels (labor shortage), crowded destinations and less-than-perfect experiences risk compromising a brand's loyal customers. It's time to think about next year's harvest as you balance hiked rates and accepted business that can't be properly supported. Consumers are exploring new types of travel today and the brands that deliver on the experience (vs exploiting the situation) will win in future seasons. Just look at private aviation as demand for flights at $4,000/hour + is at all-time highs, the best sign I've seen of "irrational exuberance."

2) A new kind of short-haul leisure demand will emerge - 58% of travelers participated in "Bleisure" activities pre-pandemic, and we think this behavior could increase dramatically in the next year. A move by large employers to concede three day in-office work weeks (or more - read this from TechCrunch) - will allow Americans to think about weekend retreats in an entirely new way. WFH/WFV creates a new flexibility to travel and could disrupt the traditional revenue management models that use the Sun-Th business, Fr-Sat leisure patterns as foundation. This also means the change to bi-furcated booking windows (very short or very long based on trip type) could be here to stay for 18-24 months. This requires a new look at pricing strategies.

3) Americans might look more like the French in the long run - data suggests that US workers are now more intent to use vacation days. As our friend Roger Dow of US Travel has pointed out for years, close to a billion vacation days go unused every year, and we think this trend will now reverse. So while we in the U.S. won't, perhaps, be taking a full month off every year, even a small move to a more European perspective could shift leisure vs corporate demand ratios.

4) International travel is coming and will change the market - customer sets who traditionally seek foreign destinations have been forced to domesticate their travel. Take a stroll through NYC or Santa Monica today and you will see an entirely different tourist, predominantly Americans. By December, this pattern will change and an influx of European, Asian and Latin American travelers will again help support air and hotel volumes in major global gateways, keeping rates high and replacing receding American demand as it normalizes. Airlines are already planning for this demand and our European research team sees intent growth for in-bound US travel, not unlike the current domestic demand spike.

5) People will still cruise and what about vaccine passports and rental car prices - well of course they will cruise! And don't expect vaccine paperwork to last. Demand for cruise product remains as high as ever, buoyed by older travelers. Several lines have seen record bookings for 2022, and while labor and safety protocols have forced institutional changes in ship operations, global travelers now show cruise intent as high as it was in 2019.

Proof of vaccine is being used in some international ports-of-call today, but it is fraught with political challenges and is not supported by most global airlines. Challenges with enforcement, cost and efficacy make it unlikely to be instituted broadly. Like masks and fist bumps, it will become less of a priority, but we do suspect airports will look for future technologies to test passengers prior to international embarkation, as pointed out by Airport Technology.

As for the $200/day people are paying for rental cars right now, that is transitory too. The big guys cut their fleets too deeply and now new cars can't be added quickly enough based on supply shortages and high prices. Sort of ironic in that shared car and disruptor start-ups were calling into question the efficacy of traditional car rental. Now they see record profit margins and even Hertz is exiting bankruptcy.

6) The meetings and convention market is changing less than you think - in our most recent study of both meeting attendees and meeting planners, we noticed that a majority of respondents are ready to get back to it. In other words, in-person meetings across corporate, association and SMERF segments are strengthening and will return to relative norms despite the Zoom culture. 2021 is baked and will see only moderate recovery, but forward bookings for 2022 and 2023 are robust. Yes, some meetings will be replaced or supplemented with virtual components over several years, but these same conditions will also spark new types of in-person meetings such as employee on-boarding & training, customer events and regional planning & retreats. People want to meet and CEOs will recognize the value of these connections, albeit in some new ways.

6) Travel agent, consortia and tour operator networks have become stronger - this has not been like the culling out that happened in the last decade, whereby travel intermediaries disappeared by the thousands. Because many are now home-based or tied to aggregated platforms, they remained invested with the industry. We also see data that suggests many traveler communities will rely more heavily on them in the next 12 months. Consortia such as Signature & Virtuoso, consolidator/packagers including Travel Corporation & Classic Custom Vacations as well as the airline tour operators have used this time to build stronger systems and support channels. They have already made a contribution to recovery and will be crucial to sustaining growth in cruise, affluent segments and international travel in 2022.

7) The principals of marketing continue to change in foundational ways - while the banning of cookie technology has been delayed for two more years, a major digital marketing shift continues as we come out of the pandemic. Closed User Groups and the use of data-led engagement strategies are now table stakes for both loyalty marketing and customer acquisition. Privacy and data advances are creating a new paradigm for understanding and connecting to travelers, while the quick deployment of content and storytelling is attracting consumers to brands as a complement to broader marketing campaigns. Importantly, modern campaign approaches must now be rooted in "permission based" models, meaning marketers with 1st party data and Personally Identifiable Information (PII) are in the best position to create relevancy.

Social justice advances and the Black Lives Matter movement have emphasized the importance of connecting properly with underrepresented communities - see MMGY's latest studies - and brand communication around sustainability as well as sense of purpose are more important than ever. A culture of marketing empathy that consumers expect from brands now plays an important role in creating lasting relationships with customers. Define your values, live those values and make them clear to your audience of consumers and stakeholders.

One significant long-term effect from the hardship of the last 18 months is an awakening of governmental and corporate power brokers around the world that see the power of travel, in both stimulating economic recovery and connecting the global community. Yes our industry is the second largest GDP contributor on earth, but it is also the most important foundation for empathy building, community healing and leading out progressive movements that make a difference. We're excited about what comes next.