CHARLOTTE, North Carolina — Hotel demand isn't quite where hoteliers would like to see it, but there are tailwinds ahead for each segment of travel and fears about the economy are overblown, one economist says.

Aran Ryan, director of industry studies at Tourism Economics, shared his future expectations of leisure, business, group and international travel during the "Economic Outlook: The Economic and Geopolitical Risks and Opportunities Ahead" general session at the 2024 HSMAI Commercial Strategy Conference.

According to consumer surveys, projected leisure traveler spend in the next 12 months is "off the charts," Ryan said.

"People want to be out there traveling," he said. "Maybe there's a bit of a recognition here that travel is going to cost you more than it did in the past, so they're resetting the budget expectations, but certainly a good sign on households."

The positive sentiment around travel spending is carried by the higher income of baby boomers and Gen Xers.

"These are really the households that account for a disproportionate share of travel spending, because not only do they have the appetite to travel, but they also have the financial wherewithal to travel," he said.

Consumer spending on durable goods such as cars, appliances or furniture has remained high over the past few years, while spending on services hasn't fully normalized to where it was pre-pandemic. This is likely to shift in the near future as consumers switch to spending on travel after completing their big durable goods purchases, Ryan said.

The job market remains strong, as there are still more jobs available than available workers. The U.S. economy is generally performing well compared to previous expectations of a recession, Ryan said. Gross-domestic-product growth is expected to slow to 2.4% in 2024 after reaching 2.5% in 2023.

"The economy has proven to be stronger than we anticipated, both in terms of businesses continuing to hire and consumers remaining confident," he said. "The brunt of those higher interest rates has been borne pretty well, we're starting to see inflation come down — it really is a pretty good soft landing at this point."

Leisure travel intentions are becoming bifurcated between income classes. Higher-income classes continue to plan to travel in the coming months, but lower-income classes are traveling less. Upper-upscale and luxury hotels are still building back occupancy lost from the pandemic, while both demand and supply is shrinking in the economy sector.

"The midscale and economy hotels really are losing ground to inflation in the weaker demand environment," he said.

Urban markets are still slowly building back demand lost from the pandemic downturn, Ryan said. Resort hotels, on the other hand, had a strong initial recovery of revenue per available room but that growth is now subsiding and evening off.

Remote work isn't as popular as it was during the pandemic, but the amount of at-home workers has gone from 5% to its current level of 27%. While that's a stark difference, the need for in-person meetings has only increased, leading to more business travel on the books, Ryan said.

More than half of fully remote workers — 58% — are meeting with colleagues in person quarterly, he said.

"You ask people about the value of face-to-face meetings now compared to pre-pandemic, we've really learned some things. We see this as significantly more valuable than we thought it was pre-pandemic. It reinforced the value of getting together," he said.

Business travel intentions are growing, especially among higher-income tiers. Strong corporate profit margins and a projected 10% growth in earnings among S&P 500 companies bodes well for the future of the segment, he said.

As for group travel, the segment hasn't quite hit a full recovery to 2019 levels, but it is only 5% below those levels.

Global travel, in general, has not just returned to pre-pandemic levels, it's back up on the prior growth trends, Ryan said. International travel, however, is taking longer to get back on track compared to domestic travel.

Domestic leisure was the first segment to recover, followed by domestic business. International leisure is trending in a positive direction while international business will take more time to recover, he said.

International travel brings a different type of traveler to the table than domestic travelers, which makes getting that piece back important for hoteliers.

"There's a different profile with the international traveler that makes them so valuable," he said. "They're spending more on hotel rooms, they're looking for that higher-tier property, longer length of stay and they're planning further ahead."

U.S. outbound travelers now spend more abroad than international visitors do in the U.S., which used to be the other way around. Ryan said international inbound demand to the U.S. is recovering strong, though, just not at the same pace as outbound demand.

The markets receiving more than 10% growth year over year in U.S. outbound demand are Japan, Italy, Germany and India. Japan has become a popular destination for Americans, cutting in to the amount of travel to China, he said.

"Japan has emerged as a strong market for Americans traveling abroad, displacing a spot that China would usually have," he said.

International inbound is at 87% of 2019 levels, with the Asia-Pacific region standing alone as the main laggard at just 75% of its pre-pandemic levels. Travel from Australia and South Korea has been strong, but inbound demand from Japan and China is at about half of what it was in 2019.

More than a third of U.S. visitors are from long-haul destinations — outside of the Americas. The U.S. still serves as the largest long-haul destination and is nearing a full recovery.

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