Revenge Travel Is Over As Lower-Income Travelers Begin To Pull Back Spending

Leisure travel is showing signs of weakening demand, with some travelers cutting costs and closing their wallets in response to what hospitality executives described as a sagging U.S. economy.

At the halfway point of the year, leaders at the nation’s top hotel chains and hospitality REITs said casual travelers at the lower end of the income spectrum were curbing spending, spurring some of them to reduce their growth expectations for the remainder of the year.

Pebblebrook Hotel Trust is among those increasingly concerned about gradually slowing average daily rate growth — a key metric in the hospitality industry — amid what they characterized as a faltering economy, CEO Jon Bortz said on a Q2 earnings call.

Bortz said the Federal Reserve’s decision to hold rates steady for an extended period is creating widespread economic uncertainty that is cutting into consumer spending and increasing cost-consciousness.

“The increase in demand from discount channels indicates that some leisure travelers, while still traveling, are becoming more price sensitive and seeking deals and bargains,” said Raymond Martz, Pebblebrook’s chief financial officer.  “The shift in customer behavior is one of the reasons we’ve adopted a more cautious top-line outlook for the second half of the year.”

Pebblebrook was one of several companies to lower its revenue per available room outlook for the year, from 2% to 4% to 1.25% to 2.25%. Ryman Hospitality Properties also lowered its outlook, citing “continued leisure transient softness” that has continued into the third quarter. Host Hotels & Resorts cautioned its RevPAR growth could sink into the negative over 2023, driven by slower-than-expected recovery from last year’s Maui wildfires and moderating domestic leisure demand.

Bortz said the company is concerned because, while Pebblebrook hasn’t seen weakness from higher-end customers yet, it isn’t unusual for cost-saving moves from lower-income customers to bleed into the upscale and luxury segments of the travel sector. To combat the demand decline, the company is doing more promotions and utilizing discount channels to drive additional occupancy, he said. 

RLJ Lodging Trust is also seeing more customers booking through discount channels, and they aren't reserving trips as far in advance as they once did, said company CEO Leslie Hale on its earnings call. She said there are signs that the economy is slowing, and those headwinds are largely impacting leisure travelers. 

“We expect price sensitivity for the leisure segment to persist, dampening our growth expectations relative to the beginning of the year,” Hale said. 

The lower half of consumers by income bracket had bank accounts “full of money” coming out of the Covid-19 pandemic, said Christopher Nassetta, CEO of Hilton Worldwide. Those people have spent that money and are now borrowing more, leaving less disposable income to travel, he said. 

“It's not cratering in any way,” Nassetta said. “It's just soft.”

Hyatt recorded a 2% drop in leisure travel revenue in Q2, which company executives attributed to renovations at several resorts, ongoing fallout from the 2023 Maui wildfires and the timing of the Easter holidays, which fell in Q1 this year, unusually early.  Without including any of those setbacks, leisure travel revenue actually increased 2%, Hyatt executives said.

Hyatt's growth is being hampered by several factors, including two major resorts under total renovation, but the company is seeing high demand overall, CEO Mark Hoplamazian said.

Other executives were cagier in their language describing the current state of leisure travel. 

High-end consumers continue to show an appetite for travel, Marriott International CEO Tony Capuano said. Fellow Marriott executive Leeny Oberg, the company’s chief financial officer, agreed, adding the company is seeing stronger performance from its premium and luxury chains than in its lower-tier chains. 

“While I think there is, at the margin, a hair more caution from the U.S. customer, we do see that there continues to be very strong demand on the leisure front,” Oberg said. 

Some executives painted a rosier picture in regard to the health of leisure travel and their forecast for the back half of the year. 

Looking at all of the important leading consumer indicators it tracks, the leisure travel sentiment continues to improve, Wyndham Hotels & Resorts CEO Geoff Ballotti said. Balotti said the company is feeling good about the second half of the year due to positive trends in domestic occupancy, including longer lengths of stay and growth in markets like Louisiana, West Virginia and North Dakota.

He said the company is seeing little difference in the customer base checking into its hotels, with middle-income guests employed at a higher rate and enjoying more wages and savings than in 2019. 

At Chatham Lodging Trust, executives said the company feels somewhat insulated from a pullback since just six of its hotels expose it to leisure travelers. CEO Jeff Fisher said the challenge for industry players has been an inability to increase average daily rates consistent with expectations heading into the year.

Fisher said he didn’t think there was anything to be nervous about in terms of an extended economic or demand slowdown. 

“It's just a pullback from, obviously, the Covid revenge travel and otherwise,” Fisher said. “I think you're into a normalization phase more than anything else here.”

The leisure decline the industry is experiencing “is really not surprising” and is centered on the budget-conscious customer, according to Ryman Hospitality Properties Executive Chairman Colin Reed. From his perspective, Reed said there is nothing to panic about. 

“The budget-conscious leisure consumer will absolutely recover, whether it's towards the end of this year or next year,” he said. “It will happen as interest rates decline, mortgage rates decline and the consumer feels a little bit better off.”