FRESH TAKES ON BIG IDEAS

After falling by 75 percent in 2020, travel is on its way to a full recovery by the end of 2024. Notably, an estimated $8.6 trillion in traveler outlays this year will represent roughly 9 percent of the year’s global GDP. In the United States, travel is one of the fastest-growing areas of consumer spending, rising 6 percent over a recent 12-month period, even when adjusted for inflation.

When travel surged after the COVID-19 pandemic, there was some concern that it would be a temporary spike and would quickly flatten out again. But it’s been long enough now that the resumption of travel seems here to stay. For the travel industry, what’s exciting is that people want to travel more and are willing to spend a higher share of their disposable income on traveling, which means the market fundamentals are there for growth.

Long-haul travel might get more attention, but the truth is that most travelers stay closer to home. Domestic travel constitutes the bulk of the global market, representing about 70 to 75 percent of total travel spending. There’s also more intraregional travel—for example, people in Asia traveling within Asia and people in Europe traveling within Europe.

With intraregional travel accelerating, companies are paying more attention to local markets. There have been various marketing approaches aimed at domestic travelers, encouraging curiosity and pride as people rediscover the beautiful sights and unique cultures within their own countries. Some hotels have offered special rates to local residents to encourage staycations (which can also be a way to boost business during nonpeak seasons). Most theme parks have started issuing annual passes and subscriptions to encourage repeat business from nearby customers instead of relying too much on out-of-town visitors.

“The estimated $8.6 trillion in traveler outlays this year represents roughly 9 percent of the year’s global GDP.”

When it comes to source markets for outbound travel, there are strong pockets of new growth in Eastern Europe, in Southeast Asia, and particularly in India. Today there are about 13 million annual outbound trips from India. By 2040, we expect that number to be 80 million or 90 million, led by a growing middle class that has increasing amounts of disposable income. India is already a strong market for domestic travel, and it will be a market to be reckoned with for outbound travel. Interestingly, more than 50 percent of Indian travelers say that TV shows and movies have influenced their travel destination choices. That’s a distinctive quality of this market, and it suggests that Indians’ preferred destinations could shift quickly, depending on which shows and movies become popular at a given moment.
 
These newer groups of outbound travelers want to feel like they’re welcome. The industry is getting better at catering to their needs. That can mean providing tour guides who speak the native language of these travelers or making sure that familiar cuisines are available while abroad. The ease of obtaining visas is part of this story: Azerbaijan, for example, introduced an expedited e-visa for Indian travelers, and arrivals of Indian travelers to Azerbaijan jumped dramatically. It's not just about the reduced administrative requirement; it’s about a feeling of being welcomed.

In terms of fast-growing destinations, Laos, the Philippines, and Rwanda are countries likely to see significant growth in inbound international travel spending between now and 2030. Much of this demand will come from members of younger generations who don’t necessarily want to visit familiar places. Instead, they prioritize new destinations and experiences that are off the beaten path—especially if it means lower costs. Laos is increasingly on the radar of travelers seeking an alternative to Thailand and Vietnam. The Philippines has made a strong effort to lean into its unique culture, positioning itself as a destination that’s about more than just the sun and beach. Rwanda’s gorilla-trekking experience shows up on the bucket lists of more and more young travelers.

One theme we’re keen to keep exploring is sustainability. Travelers we’ve surveyed say they care about sustainability and it’s a consideration when they travel. But if you ask them to rank the importance of different factors in selecting a hotel, sustainability comes in 21st out of 26 factors. So travelers’ intentions are there, but we’re still trying to understand how they might translate into behavior shifts. Another area we’re looking at is luxury travel. We’ve found that 30 percent of spending on luxury travel, counterintuitively, comes from travelers with net worths of less than $1 million. Research on topics like these provides a fact base that helps us stay attuned to travel flows, traveler needs, and where the spending growth is.

ABOUT THIS AUTHOR

Margaux Constantin is a partner in McKinsey’s Dubai office.