As destinations and source markets have changed, tourism and hospitality companies have evolved too. Six key trends have shaped business models in this sector over the past decade.
In accommodation, asset-light models like franchising and management have proliferated, though luxury and small-scale brands are opting out. Consolidation has driven economies of scale. Hotels are looking to reclaim their relationship with guests, and almost two decades in, home sharing is charting its own course.
In the experiences space, reinvention is the name of the game. Cruises and theme parks have both focused on attracting new demographics while fine-tuning their revenue management strategies. Experiences remains a highly fragmented, legacy sector, creating massive opportunity for those able to crack the code on aggregation.
By considering the six trends, tourism and hospitality companies can gain insights on business practices for today—and on areas of future opportunity.
“The uptake in sustainable tourism is driven by an appetite to travel sustainably and make more responsible choices. Bain has developed a framework defining the components of a sustainable tourism experience around three pillars: environmental impact (e.g., eco-friendly transportation and accommodation options), social responsibility (e.g., DEI standards), and community engagement (e.g., contract with locals)” says Karim Henain, Partner at Bain & Company Middle East.
There is a significant opportunity among the “sustainability enthusiasts” segment of travelers interested in visiting the MENA (Middle East and Northern Africa) region. The study’s aim is to better understand the behaviors and preferences of relevant travelers interested in MENA as a destination. The research covered consumers from six markets: Germany, Italy, France, the UK, Saudi Arabia, and China.
About the EY Europe Attractiveness Survey 2023
For this 22nd edition of the Europe Attractiveness Survey, we again draw on two sources:
Large hotel brands have increasingly turned away from hotel ownership, scaling their business through franchising and management instead. The move is paying off. We find there is a 0.84 correlation between a hotel company’s share of franchised properties and its net profit margin.
Not all of hospitality is embracing asset-light model, however. Luxury hotel chains have resisted the trend, largely retaining in-house ownership to control standards. And smaller brands may find that they cannot reach the economies of scale that make the math of a franchise business work—focusing instead on creating distinctive experiences on a smaller scale.
Consolidation set the stage for the past decade. Several hotel brands quickly grew their foothold in key geographies and customer segments through strategic acquisitions, achieving economies of scale along the way.
As major hotels take a breather from a series of substantial acquisitions, further mergers between large hotel brands seem unlikely. However, tuck in acquisitions to target key growth demographics, like the luxury and youth categories, are likely to continue.
Another trend on the horizon is direct booking. Long reliant on online travel agencies, hotels are looking to reclaim their relationships with customers—both to cut down on intermediary booking fees and to learn more about their guests. Hotels are encouraging direct bookings through a variety of levers, ranging from best-rate guarantees to higher reward-earnings rates and improved mobile applications.
Home sharing is here to stay. The segment has grown from 10 to 14 percent of booking value between 2017 and 2023, experiencing ups and downs in profitability along the way.
Recently, home sharing has positioned itself as more than a stand-in for traditional hotels. Airbnb’s recent advertising campaign “Get an Airbnb” leaned into the differences of home sharing from other hospitality offerings, emphasizing the space and privacy that renting a house can offer.1
Home-sharing companies have also become a key distribution channel for smaller hotels, as they can offer more control over inventory and lower fees than other channels. In 2019, Airbnb reported a 152 percent increase in the number of rooms available for booking through its platform in boutique hotels, bed and breakfasts, and resorts.
Importantly, compared with the rest of the survey respondents, sustainability enthusiasts were:
A chart showing the three most important factors respondents considered when choosing a country to invest in. The top three were:
Egypt has several assets to leverage, but still has some work to do
Egypt has already launched several initiatives to improve the sustainability performance of its travel and tourism sector. Examples include Mainstreaming Biodiversity in Egypt’s Tourism (MBDT), Green Star Hotel (GSH), as well as flagship initiatives promoting Egypt’s holiday destinations across sustainability pillars, such as the town of El Gouna, “the first place in Africa and the Arab region to receive the UN-sponsored Global Green Town award,” which recognizes cities that display “substantial efforts and progress towards environmental sustainability and a greener community.” El Gouna has a zero-waste system where more than 85% of all waste is reused and recycled.
To evaluate how travelers perceive Egypt’s sustainability efforts, the survey respondents were asked to rank Egypt’s sustainability performance vs. the main competing destinations in MENA (Greece, Turkey, Tunisia, UAE, Morocco). Sustainability enthusiasts perceived Egypt’s sustainability performance more favorably compared to competing destinations as they ranked Egypt 2nd, however, overall survey respondents ranked Egypt 4th.
Balancing the right mix of “bass notes” and “high notes” is important for Egypt’s sustainable tourism. While bass notes broad important topics such as sustainability certificates and green infrastructure are critical, customers tend to follow the high notes, which are topics that create differential competitive advantage. For Egypt, an example of high notes would be to enhance the preservation of its cultural and natural assets across key eco-tourism zones.
The opportunity that sustainable tourism presents to Egypt’s tourism sector is sizable and requires a coordinated effort across the entire ecosystem in order to capitalize on this opportunity. The roadmap should include:
Cruises may only account for 2 percent of the overall travel and tourism market, but they have achieved 6 percent yearly revenue growth in the past decade.1 Attracting new travelers and providing new experiences have been key growth strategies.
Luxury hotels are capturing the new-to-cruising segment with the launch of yacht brands, purposefully positioned as a distinct experience from traditional cruises. Meanwhile, millennials are challenging stereotypes about cruising: of all cruise passengers, they are the demographic most likely to say they plan to cruise again (88 percent).2
In parallel, cruises have fine-tuned their profitability through economies of scale and new revenue streams. Megaships have become the new normal, as ships with over 3,000 berths have grown from 27 to 47 percent of the global cruise fleet since 2015. Ancillary purchases such as onshore excursions and onboard casinos have also become a major source of growth, now accounting for 30 percent of revenue on average.
Theme park attendance has grown 3 percent a year over the past decade, as theme park providers capitalize on new demographics and refine their revenue management strategies.1
Two new groups of visitors in particular are powering growth. First, the Asia–Pacific region accounted for much of the growth in theme park attendance in the past decade: of the total number of new visitors between 2013 and 2018, 57 percent were from Asia. Second, millennials are heading to parks in greater numbers, and not just for their children. A similar proportion of millennial parents (78%) and millennial nonparents (75%) say they are interested in going to a theme park.2
To increase value from growing attendance, theme parks have become increasingly sophisticated in the field of revenue management. Demand-based pricing, tiered annual passes, and skip-the-line fees are all poised to go from pioneering to widespread practices.
Theme parks are targeting new regions and demographics.
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Experiences are increasingly important to travelers, but the segment remains a highly fragmented space. Operators of activities ranging from walking tours to snorkeling outings tend to be small businesses with a limited digital presence.
This has created an opportunity for tech-forward companies to help travelers discover and book experiences. Destination marketing organizations have long played a role in this. For instance, VisitScotland helps visitors discover interesting activities like attending Harry Potter filming locations and whiskey tastings.
Several private companies that offer online discovery and booking platforms for travel activities, like Viator, GetYourGuide, and Klook, have achieved considerable growth in the US, European, and Asian markets.1 GetYourGuide grew its revenue fourfold between 2022 and 2023, Viator revenue was up 49 percent for the same time period, and Klook reported twice as many new customers in 2023 as in 2019.
Importantly, compared with the rest of the survey respondents, sustainability enthusiasts were:
A chart showing the three most important factors respondents considered when choosing a country to invest in. The top three were:
Egypt has several assets to leverage, but still has some work to do
Egypt has already launched several initiatives to improve the sustainability performance of its travel and tourism sector. Examples include Mainstreaming Biodiversity in Egypt’s Tourism (MBDT), Green Star Hotel (GSH), as well as flagship initiatives promoting Egypt’s holiday destinations across sustainability pillars, such as the town of El Gouna, “the first place in Africa and the Arab region to receive the UN-sponsored Global Green Town award,” which recognizes cities that display “substantial efforts and progress towards environmental sustainability and a greener community.” El Gouna has a zero-waste system where more than 85% of all waste is reused and recycled.
To evaluate how travelers perceive Egypt’s sustainability efforts, the survey respondents were asked to rank Egypt’s sustainability performance vs. the main competing destinations in MENA (Greece, Turkey, Tunisia, UAE, Morocco). Sustainability enthusiasts perceived Egypt’s sustainability performance more favorably compared to competing destinations as they ranked Egypt 2nd, however, overall survey respondents ranked Egypt 4th.
Balancing the right mix of “bass notes” and “high notes” is important for Egypt’s sustainable tourism. While bass notes broad important topics such as sustainability certificates and green infrastructure are critical, customers tend to follow the high notes, which are topics that create differential competitive advantage. For Egypt, an example of high notes would be to enhance the preservation of its cultural and natural assets across key eco-tourism zones.
The opportunity that sustainable tourism presents to Egypt’s tourism sector is sizable and requires a coordinated effort across the entire ecosystem in order to capitalize on this opportunity. The roadmap should include:
Where does this leave tourism and hospitality companies? Companies in any given sector tend to follow a power law curve: a small share of companies account for an outsize portion of both profits and losses. The tourism and hospitality sector is no different.
Over the past decade, publicly listed accommodation and experience providers grew revenue at 3 percent and 4 percent, respectively, roughly in line with global GDP growth. Accommodation providers increased their profits by five percentage points, while experience providers remained at an 18 percent average profit margin.
Importantly, compared with the rest of the survey respondents, sustainability enthusiasts were:
A chart showing the three most important factors respondents considered when choosing a country to invest in. The top three were:
Egypt has several assets to leverage, but still has some work to do
Egypt has already launched several initiatives to improve the sustainability performance of its travel and tourism sector. Examples include Mainstreaming Biodiversity in Egypt’s Tourism (MBDT), Green Star Hotel (GSH), as well as flagship initiatives promoting Egypt’s holiday destinations across sustainability pillars, such as the town of El Gouna, “the first place in Africa and the Arab region to receive the UN-sponsored Global Green Town award,” which recognizes cities that display “substantial efforts and progress towards environmental sustainability and a greener community.” El Gouna has a zero-waste system where more than 85% of all waste is reused and recycled.
To evaluate how travelers perceive Egypt’s sustainability efforts, the survey respondents were asked to rank Egypt’s sustainability performance vs. the main competing destinations in MENA (Greece, Turkey, Tunisia, UAE, Morocco). Sustainability enthusiasts perceived Egypt’s sustainability performance more favorably compared to competing destinations as they ranked Egypt 2nd, however, overall survey respondents ranked Egypt 4th.
Balancing the right mix of “bass notes” and “high notes” is important for Egypt’s sustainable tourism. While bass notes broad important topics such as sustainability certificates and green infrastructure are critical, customers tend to follow the high notes, which are topics that create differential competitive advantage. For Egypt, an example of high notes would be to enhance the preservation of its cultural and natural assets across key eco-tourism zones.
The opportunity that sustainable tourism presents to Egypt’s tourism sector is sizable and requires a coordinated effort across the entire ecosystem in order to capitalize on this opportunity. The roadmap should include:
Summary
As stakeholders gear up for the next decade, there are things that businesses across the sector can do to sustain their hard-won growth—and profits. Moving forward, three strategies in particular can help tourism and hospitality companies stay on the leading edge of innovation.
Unbundle offerings
Hotel and experience providers can take a page from the airline playbook by unbundling rates and letting consumers pay for the exact experience they want. For example, at the time of booking, hotels can present guests with an individually priced bundle for a room on a higher floor, including breakfast and free parking—features that the guest’s past behavior suggests they would particularly value. Ensuring that guests can find their ideal room can lead both to increased revenue and increased satisfaction. A major hotel brand reported that guests chose to spend an additional $22 per night, on average, to customize their hotel room to their liking.1
Cross-sell exclusive experiences
For accommodation and transportation companies, partnering with experience providers to cross-sell a full journey provides an opportunity to tap into a growing area of traveler spending—and a chance to deepen the relationship with customers as a vacation creator. For example, airlines can partner with museums to offer discounted rates if booked at the time of the flight, or hotels can partner with a historical site nearby to offer early-hours admission. For uptake rates to become significant, the partnership needs to add value beyond mere cross-selling. Offering features like insurance or an option to buy now and pay later is one way to add value; creating a distinctive experience like a combined train and historic hotel journey is another.
Embrace a data-powered strategy
Tourism and hospitality entities individually hold a treasure trove of untapped data. Take Paris: hotels may see a surge in bookings for the “shoulder season.” Experience aggregator platforms might see that street food tours have attracted rising interest. Social media might reveal that a particular neighborhood is exploding in popularity. What special guest experiences could be created by combining these insights? Stakeholders can unlock new revenue streams by thinking through what data they hold that can be of value to others. More broadly speaking, combining multiple sources of data can help guide a strategy of unbundling and cross-selling to create more gratifying and pertinent experiences for travelers around the world. Embracing data isn’t just smart—it’s the future of travel.
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