European luxury hotels recorded strong growth in 2010 which continued into the first quarter of this year, driven by travelers from outside Europe returning to the region and leisure travelers choosing to stay in premium accommodation, according to new research from American Express Business Insights.
Vice president of AMEX Business Insights for Europe and Asia, Sujata Bhatia, looked at the hotel sector trends in the UK, France, Germany, Spain and Italy from 2007 to the first quarter of 2011.
She found that although overall hotel spending increased by seven percent in 2010 and four percent in the first three months of this year, recovery within the sector varies between countries and has yet to return to pre-downturn levels.
“The UK, France and Germany are back pretty much to 2008 levels. For Spain and Italy they’ve had a deeper hit and they’re slower to rebound, so they’re not yet back at 2007 or 2008 levels,” she told CNBC.com.
However, luxury hotels lead the way on growth with an overall improvement of 9 percent on 2009 figures for five-star hotels, compared to just three percent for upscale four-star accommodation and two percent for midscale three-star lodgings and below.
In the UK and Spain, luxury spending increased significantly last year at 10 percent and 17 percent, respectively.
“Luxury spending is back, it’s rebounding faster than any other tier, traveler spending is up – they’re upgrading their rooms, they’re staying longer,” Bhatia explained.
United States visitors are driving growth, but travelers from emerging market nations are also increasing.
“If you talk to people in the industry, they’re really starting to feel that there’s a lot of people from outside Europe coming in and holding up their recovery. They primarily come from North America and within that key feeders are New York, California, Florida, Mexico City, but they also come from the BRIC markets – Brazil, Russia, India, China – and the Middle East,” she added.
Gen Y: Ditching the Backpack
A surprising five-star traveler has emerged amongst the twentysomething age group, often referred to as ‘Generation Y’. Despite being a relatively small market, those usually associated with backpacker’s hostels and festival camping are actually more willing than others to pay extra for premium accommodation.
“If you look at Generation X, Baby Boomers and seniors in the downturn, their spending declined pretty dramatically and it’s rebounding to varying degrees, but they’re all kind of following the same pattern," Bhatia said.
"If you look at Gen Y customers, their spending declined a little bit in the downturn, rebounded pretty quickly and then kept going…so in fact they exited the downturn spending 20 percent more than they did before the downturn.”
Bhatia believes the emergence of the Gen Y luxury traveler is reflective of their general spending habits.
“On average they’re 25 years old, 42 percent of them are female, most of them come from outside of Europe and predominantly North America. They have a very interesting aspirational spending pattern so although they don’t make that much money, they’re willing to splash out on luxury and upscale hotels as well as midscale ones,” she explained.
“They’re also consumptive in nature; they’re not savers. On average they spend 20 percent more on dining and 15 percent more on retail than other generations,” she added.
The challenge for high-end hotels is to come up with new ways to attract young travelers willing to put their hands in their pockets for premium accommodation. Bhatia says that social media is key for a generation as concerned with the quality of a hotel’s Wifi access as they are with the brand of complimentary bathroom products.
“This is a new generation that hotels haven’t had experience in capturing before, so things like social media, things like the experiences that they offer to their customers are going to have to be dramatically different,” Bhatia stressed.
“In terms of destination they show strong preference, the UK is top. They're not coming here to go to ride the London Eye, go to the The Ivy and go see Jersey Boys; they’re more likely to want to get to Boujis and Mahiki and go on a Camden Market tour and maybe get to one of the festivals, so hotels really have to rethink their approach to these people and figure out how they’re going to revamp what they’re offering to capture them early,” she added.