The current generation of ultra-luxury travelers is nearing its evolution to the next best thing.
We believe the cohort of people who have previously been the target of ultra-luxury hospitality is increasing in size due to worldwide economic growth since 2016. As the market matures, travel brands effectively segment a growing audience, thereby creating bull markets within their sector: relatively high demand and high prices. The sector draws revenue-generating investment. Unless managed correctly, the growth in demand exceeds the sector’s capacity to meet demand which creates scarcity, further driving price and investment in more capacity. In effect, even the ultra-luxury travel segment is accessible in a democratic-capitalistic way.
Rising Tides: There are more people with the means and motivation for ultra-luxury travel.
Total population of wealthy people (millionaires)
- 2022: 59.4 million (55 million when excluding the 4.4 million “inflation millionaires”)
- 2016: 32.9 million
Total amount of personal wealth worldwide (all adults)
- 2022: $454 trillion
- 2016: $256 trillion
#1 Interest of millionaires:
Travel 66%
(Among 180 U.S. adults with a household net worth of $1 million or more (excluding the value of their primary residence) Feb. 5-29, 2024)
It is a natural evolution for any sector.
The category trailblazers (the 0.1%) become habituated to the experience of “corporate ultra-luxury” and they move on to something else, usually smaller because they value their personal/family space/privacy/comfort. Maybe a yacht cruise. Maybe an expedition. Maybe a service trip. Maybe to space. In effect, they outgrow the current version of ultra-luxury and need something better. Perhaps the naming convention of using a more evocative adjective is not the best way to model the travel market (would it be called hyper-luxury in T+L?). Precisely because the naming convention exists in the consumer vocabulary it loses its meaning to the people creating it. The adjective does not represent what the trip experience is going to be. Luxury remains a personal expression.
As the top moves on, the next generation moves in, bringing different experiences and expectations which brands cater to because the market is so large.
Ultra-luxury travel is poised for a per-guest revenue decline.
This growing audience is good for the industry as a whole, but for properties within the sector there may be financial consequences. The hotels and resorts have run on a high margin for years, but the new class of consumer is more discerning and difficult to convert into ancillary spending, relatively speaking. Your trailblazers have started to move on, so their high spending is being diverted to other things, and as a result the hotel is full, but the margins are in decline and so are the revenues per guest. Your directors want to know why this is happening, and you can tell them the perception of slowing revenue is actually just the tide of consumers washing over the brand. The leading edge is moving on because they never stand still. Like a shark. And they are being replaced by (still great) guests who are slightly more conservative than the trailblazers. As the replacements mature, that particular model of ultra-luxury becomes standardized, institutionalized for operational efficiency. With the right time horizon, we will find that today’s ultra-luxury is the foundation of the table-stakes in the industry. Exactly like color TV and air conditioning were to motels and hotels in the 1950s.
What to do? It depends on how you got here.
· Portfolios should look to add niche properties that directly connect with people’s passion. Keep them independent until the market matures, likely 10 years or less. Move the creator-people to the next iteration of luxury travel, whatever form it may take. This is a continual evolutionary process and a job for your strategy friends.
· Developers and travel providers should design their plans from the biosphere down to the organism, then test and refine their ideas from the organism up to the biosphere. The customer wants harmony, in many different forms.
· Investors should look for clear, concise communication. Everything is built on trust & verification, truth & cooperation to reach the best possible outcome for all parties.
· Travelers are investors in their leisure and should seek the same thing as financial investors. ROI in the form of their travel goal (education, relaxation, adventure, connection, etc.)
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