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Holiday Romance

James Pomeroy, Global Economist and Yun Liu, ASEAN Economist

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How strong is the travel megatrend?

The COVID-19 pandemic was a once-in-a-lifetime shock for the global travel industry. With borders closed, flights cancelled, and hotels shuttered, it seemed that the industry was going to take a very long time to recover to pre-pandemic levels, let alone the lofty expectations of future growth.

153%
Increase in number of nights spent by foreigners at tourist accommodation in Croatia, vs. EU27 average of 48%
(Eurostat, Data span: 2010-2019)
USD8.6trn
Estimated traveller outlays in 2024, equal to c9% of global GDP
(Oxford Economics, May 2024)

And yet, less than five years later, the sector has boomed, driven by a combination of higher wealth levels at the richer ends of society, shifts in spending preferences, social media advertising and an abundance of travel options. In early 2024, Americans spent roughly 20% more on overseas travel than in 2019.

It’s always dangerous to extrapolate trends, but this is an area of the global economy where the recovery appears to be on a sound footing. As consumers cut back in certain areas amidst a cost-of-living squeeze, traveller numbers rose ever higher and countless surveys suggest that people want to travel, both overseas and domestically, more than ever before.

And for millions of people across the world, that is becoming a reality for the first time. The soaring middle class in Asia and other emerging economies means that by 2040 there is likely to be millions more overseas travellers from India and rest of SE Asia. That could have an enormous economic benefit to the economies most exposed here – think Thailand, Dubai, Spain, Italy and beyond.

The internet makes this easier, too. Never before has it been easier to find travel options (including flights, hotels and activities), get inspired by social media or use translate apps when overseas to make travel less complicated.

Demographics will play a role, too. An ageing global population, with more people than ever retiring earlier and richer, creates a whole new market for global travel. Flush with time and money, this growing cohort of global travellers could drive demand for certain destinations or types of holidays.

This growing demand does bring challenges. Supply constraints, running up against strong demand, risk putting more consistent upward pressure on prices for the sector. In 2024, the strength of inflation in pockets of the service sector has become uncomfortable for central banks in Europe, with hotel prices a major contributor to the elevated services inflation prints that have made policymakers shy away from cutting rates as quickly as they may otherwise have done.

What is more, flights pose a risk to climate goals and ‘overtourism’ is already an issue in many popular resorts across Europe. We could see a shift, though, to a longer travel season (and more year-round destinations) and climate change making new destinations (such as Swedish beaches) appealing against the sizzling southern European summer.

This could mean that the gains from the tourism boom broaden out. Climate-conscious consumers may focus more on domestic or train travel (for example, Brits going to the Lake District or Cornwall rather than the Mediterranean) or more eco-friendly options, such as resorts and hotels that work alongside nature or simply not travelling at all and consuming “tourism” virtually. The growth of more diverse holiday choices – going beyond relaxing retreats and food travel to more health tourism and luxury – will bring more atypical destinations to the fore.

But this looks like an unstoppable trend – with more demand for tourism across the world in the coming years. This could have wide reaching impacts across geographies and sectors of the global economy – both for the better and worse.

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