Current Macroeconomic Environment and the Travel and Tourism Industry

Following a period of significant economic growth coming out of the COVID-19 pandemic, several headwinds have resulted in an economic slowdown through 2022 and 2023. Over the past two years, rising interest rates, soaring inflation, and competitive housing markets have resulted in financial hardship for many Canadians and Americans alike.

Despite these economic challenges, the tourism industry continues to grow. While international travel ground to a halt during the pandemic, many regions expect tourism to bounce back to pre-pandemic levels in 2023 or by early 2024. How is it that a category that relies so heavily upon discretionary spending has continued to thrive while many are struggling with the cost of living?

It comes down to the power of emotion in consumer decision-making. This article will explore three factors that have fueled tourism growth: accumulation of wealth, pent-up demand, and, most importantly, a fundamental shift in consumer values.

Savings and Wealth Accumulation

During the COVID-19 pandemic, lockdowns and social distancing restrictions led more individuals to stay close to home and spend less on leisure activities like dining out and activities with friends. With a reduction in discretionary leisure spending combined with COVID-19 stimulus benefits, many individuals, particularly those in the middle to high-income brackets were able to significantly accumulate their savings and wealth by as much as 25% over this period. These high levels of savings served as a cushion, enabling greater resilience as we entered the economic slowdown in 2022 and into this year.

Pent up Demand

In addition to changes in spending patterns, the COVID-19 pandemic significantly altered our movement and travel behaviors. International travel stopped, and while many did choose to pursue regional travel, there was a significant pent-up demand and backlog of trips due to COVID-19 travel restrictions and lockdowns. This pent-up demand was only made stronger with the growth of discretionary spending power from savings accumulation. Customers were eager to take to the skies again. The reopening of borders in 2022 resulted in a surge in demand, driving up travel prices which are expected to remain high, at least in the near term, given continued high travel demand and slow recovering supply.

Shifting consumer priorities and values

Years of lockdown fundamentally reshaped consumers’ values and priorities. Today, travelers are driven by a burning desire to seek out new experiences and are prioritizing these purchases, sometimes sacrificing more “rational” decisions to save, purchase that car, or pay off their mortgage to do so.

Beyond prioritizing travel purchases in their lives, this shift in values has manifested itself in the types of experiences travelers are seeking. Fewer travelers are going on the typical beach or European vacation. They are seeking more extreme experiences to connect with nature and check bucket-list items (e.g., African safaris, arctic excursions), purpose-driven travel with authentic local connections (e.g., staying with Amazonian tribes, local culinary experiences), and opportunities to connect and build memories in larger family groups.

Looking Ahead

So, what does this mean for the tourism and adjacent industries going forward? Operators should continue to adapt their offerings, brand positioning, and messaging to align with key trends and the emotional needs of consumers.

These learnings extend far beyond the tourism sector. Emotion plays a fundamental role in decision-making and consumer behavior in nearly every category. At Level5 we firmly believe that every business can benefit from understanding the emotional and rational drivers of behavior. This insight serves as the foundation for building a compelling Promise and strategy to deliver profitable growth.

Curious about the role of emotional drivers in your industry? At Level5 Strategy, we believe in the power of emotions to shape the behaviors and purchase decisions of consumers, even if they might seem irrational at the surface. We can help you understand and quantify the impact of emotions on your business. Contact Evin Demirli or Carolyn Adams for more information.