Luxury travel continues to be a booming industry, with high-end experiences and exclusive destinations attracting affluent travelers from around the world. However, one expert believes that the momentum may not last forever, suggesting that price reductions could be in store for luxury hotels and cruises in the near future.
Clayton Reid, executive chairman and former CEO of MMGY, a leading travel and tourism marketing agency, recently shared his thoughts on the future of the luxury travel market. During a keynote presentation at the SmartFlyer Core conference in Lake Louise, Alberta, Reid explained his concerns regarding rising hotel rates, particularly for upper-level luxury hotels. “I think rates are going to have to come down a little bit,” Reid said, addressing a group of about 160 luxury travel advisors.
According to recent data from CoStar, luxury hotel rates increased by a modest 1% in 2024, reaching an average of $388 per night. While this is a slight uptick from the previous year, it still marks a 31% rise from 2019 levels. This surge has led to an increase in the number of hotels charging over $1,000 per night, with U.S. properties seeing the most significant jump. In fact, CoStar’s analysis found that the number of U.S. hotels with an average annualized nightly rate of $1,000 or higher has increased from 22 in 2019 to around 80. Similarly, high-end hotels in Italy and France are following suit.
Despite the overall rise in luxury travel pricing, Reid doesn’t foresee a downturn in the most exclusive market segments. He points to properties like the Sheldon Chalet in Denali National Park, Alaska, which caters to a select few wealthy clients, charging up to $96,000 for a three-night stay. For this ultra-luxury segment, scarcity drives demand, and these clients are unlikely to be affected by market changes.
However, Reid believes that many travelers who frequent larger luxury hotel brands, such as Four Seasons and Ritz-Carlton, may start feeling the pressure. “I think everybody has been paying whatever they need to pay to go wherever they want because they’ve had a lot of ammunition,” he said, referring to the financial cushion many have enjoyed in recent years. “But I would argue that people in the upper middle class are running out of ammunition.”
As consumer spending habits shift, Reid anticipates a price compression across various sectors of the luxury market, including hotels, cruises, and tours. One indicator of a change in consumer behavior is the rise in credit card delinquency rates, which have more than doubled between fall 2021 and fall 2024, according to Federal Reserve data.
Despite these concerns, luxury travel advisors at the SmartFlyer Core conference were generally optimistic about the future. COO Erina Pindar shared that SmartFlyer saw a 15% increase in revenue in 2024, and advisors like Michelle Jackson, based in Florida, expect 2025 to be another strong year. While Jackson acknowledged that hotel rates may stabilize, she doesn’t foresee a drastic reduction in prices.
CoStar’s forecasts also align with a cautious optimism. The company predicts that revenue per available room (RevPAR) for U.S. luxury hotels will grow by 2.9% in 2024, with a steady increase over the next few years. While these figures are encouraging, SmartFlyer founder Michael Holtz echoed Reid’s sentiment that luxury travel rates could eventually reach a tipping point, particularly in cities like New York. “Now you can’t find a good hotel for under $1,000,” Holtz noted, referencing the rising prices in the city. “I do think that there is a breaking point when some people are going to say, ‘I’m not coming to New York and spending $1,800 a night. I’m going to go somewhere else.'”
Despite potential challenges, Pindar believes that a more fundamental dynamic post-pandemic will continue to support demand for luxury travel. As travelers seek unique and exceptional experiences, the luxury market may adapt, balancing pricing pressures with the desire for exclusivity and unparalleled service.
In conclusion, while a slowdown in the luxury travel market may be on the horizon, it’s clear that some segments especially those targeting the ultra-wealthy will likely remain unaffected by broader market shifts. As the industry adjusts, the role of expert travel advisors and the pursuit of exclusive experiences will continue to shape the future of luxury tourism.
