In the face of a changing global economic landscape, people are packing their bags and heading to domestic and international destinations. This has been the travel recovery story of the last two years, but what's different this year is how mainland China’s reopening could impact the worldwide travel industry.
So far this year, outbound tourism expenditures from mainland China are getting closer to pre-pandemic levels. By March 2023, Chinese spending on experiences abroad surged from virtually zero last year to now just below where it was in 2019 1 .
In addition to mainland China’s reopening, new travel corridors are emerging. Business travel is growing just as strong as leisure and spending on experiences is outpacing spending on things. 2
In the background of this continued travel recovery is a global economy facing uncertainty. Elevated inflation and interest rates are expected to pull worldwide real GDP growth down to 2.8% YoY throughout 2023 from 3.4% last year, according to the latest estimates from the Mastercard Economics Institute.
While inflation and interest rates impact consumers differently by market, discretionary spending typically takes the brunt of an economic slowdown. Notably, discretionary spending could prove more resilient this time around – given the state of the labor market and savings. These dynamics could become less favorable through year-end, but are expected to keep consumers prioritizing spend on travel and experiences.
The Mastercard Economics Institute's fourth-annual travel report, Travel Industry Trends 2023, explores today's traveler, the impact of mainland China's reopening on global tourism, new and consistent travel destinations, the pace of business travel recovery and how travelers are spending.
Central to the 2023 travel outlook is an emphasis on experiences like travel over things – a sticky preference that emerged after mobility restrictions eased. Also shaping this year’s trends in travel are the different ways people around the world travel and mainland China’s reopening. Travelers from mainland China could bolster growth globally with a concentrated impact in Asia Pacific expected to help the region outperform the rest of the world, according to Mastercard Economics Institute estimates.
Key takeaways:
- Travelers from North America will travel to Italy, Germany and France
- European travelers will head toward the U.K. Spain, Italy, and the U.S.
- Travelers from Eastern Europe and the Middle East will explore the U.K., France, the U.S., Saudi Arabia and Egypt. Saudi Arabia and Egypt are in the top 10 destinations for the first time since the inception of this report.
- Travelers from Latin America and the Caribbean will journey to the U.S., Spain, and Germany.
- AP travelers will travel to US and Australia
The economy’s mixed signals create a complex backdrop for global travel trends for both leisure and business trips. High-income consumers, backed by wage growth and excess savings of $1.7 trillion in the U.S. and €1 trillion in Europe, are driving robust consumer spending. 5
So far, leisure travel demand remains robust through the end of March 2023. Leisure travel bookings were up roughly 31% at the end of March compared to the same time in 2019, representing an impressive 25% year-over-year-to-date growth between 2022 and 2023. 6
At a market level, travel demand remains robust, driven by travelers leaving Europe, North America, Latin America and the Middle East. Meanwhile, flight bookings in Asia Pacific are surging as strict mobility restrictions over the last three years contributed to high pent-up demand for travel.
Rising mortgage payments, declining asset prices and tightening of credit lending worldwide could dampen spending and employment, leading to changes in travel preferences and spending habits through the rest of 2023.
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Mainland China boasts an enormous travel market, so its reopening has significant implications for the travel industry as Chinese spending power and travel appetite have historically been vital to global tourism.
Considering the possibility of a U.S. and European slowdown, mainland China's reopening could provide a much-needed boost to global growth. ASEAN economies and others in the Asia-Pacific region are obvious beneficiaries of mainland China's opening, given their strong interlinkages with international trade, tourism and geography.
Other countries expected to benefit from mainland China’s reopening include European exporters – Germany, the Netherlands and France – and tourism destinations across the region. In addition, Mexico and Brazil should see a boost in their exports to mainland China as the economy recovers.
When compared to Australian and American travelers, travelers from mainland China historically spend more on retail (especially apparel) and groceries over accommodations or eating out.
However, as the economy in mainland China opens, the demand for essentials may shift toward discretionary services, such as tourism, hospitality and experiences, and travel-related goods like luggage. So, despite a love of shopping, we expect travelers from mainland China to spend more on experiences rather than things after a zero-covid environment. Luxury travel experiences, including splurging on high-end accommodations and luxury travel in places like France and Italy, will likely entice tourists from mainland China emerging from a zero-Covid environment to rejoin the experience economy.
Pent-up travel demand will likely drive strong tailwinds for domestic travel recovery. Hainan's tax-free haven status is quickly becoming popular with domestic consumers interested in luxury shopping, even with prices in mainland China higher than in Europe. Luxury brands have opened stores and made other investments in mainland China during the pandemic to reach this booming consumer base. With the luxury shopping experience extending beyond the purchase of goods, luxury brands have also tailored their services and marketing strategy to local preferences in mainland China. This strategy may continue to bear fruit in a post-covid environment.
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Popular travel destinations in 2023 are influenced by travelers from Asia Pacific and the U.S. Markets in Northeast Asia—particularly mainland China and Hong Kong—are expected to take off, while India, Australia and New Zealand anticipate a more moderate expansion. A strong U.S. consumer base and a sustained interest in tourism will inspire Americans to travel to Central America, the Caribbean and Europe. Tourism-driven European countries like France, Italy, Spain, Portugal and Greece could disproportionately benefit from resilient global tourist arrivals. Here are more trending travel destinations and corridors and predictions for tourism hotspots this spring and summer by region. 7
North America
Mexico remains North Americans’ most favored travel destination, along with the Dominican Republic, Puerto Rico and Jamaica in the Caribbean, and Italy, Germany and France in Europe.
Robust consumer spending and rising disposable income contribute to the demand for travel. Furthermore, a rise in remote work opportunities has resulted in more flexible travel schedules for North American tourists. This trend, boosted by a seemingly renewed interest in exploring new destinations, supports the growth of regional travel to Europe and the Caribbean.
Asia Pacific
Hong Kong started attracting travelers in late 2022, jumping to the top three destinations in February 2023, proving that Northeast Asia is back in business. The economy in Hong Kong could get a significant boost from affluent travelers from mainland China. At the same time, the U.S. and Australia remain favorite destinations in the spring and summer.
Across Asia Pacific, rapid urbanization, technological advancements and a burgeoning middle class contribute to the rise in outbound tourism. This growth is further fueled by the proliferation of low-cost carriers, improved visa policies and an increasing emphasis on experiences and adventure travel. As a result, Asia Pacific travelers are eager to explore regional and international destinations, creating diverse opportunities for the travel industry.
Europe
Unsurprisingly, Europe’s most popular tourist destinations have stayed mostly the same, with urban explorers still venturing to cities in the U.K. and beachgoers jetting off to the shores of Spain and Italy.
But weather patterns prompted subtle changes in where people spend their summers. Extreme heatwaves and risks of wildfires in southern Europe have driven travelers to explore the north of the continent, including the UK, Scandinavia, the Netherlands, Switzerland and Germany.
Meanwhile, the U.S., which ranked fifth among the top 10 destinations for European travelers in 2022, now ranks fourth, highlighting a building desire to venture farther away from home in search of adventure as well as a weaker dollar compared to last year.
Middle East & Africa
The U.K., France and the U.S. remain the most popular international destinations for travelers leaving the Middle East. However, in 2023, a new dynamic emerged, with travelers exploring destinations closer to home. Saudi Arabia and Egypt made the top 10 rankings this year, in ninth and 10th place, after not appearing in the top 10 in 2022.
Efforts to diversify the Middle Eastern economy and investments in tourism have played a crucial role in shaping this dynamic. The region is increasingly focusing on developing its leisure and cultural tourism offerings, driven by the expansion of air routes, visa facilitation and strategic marketing campaigns. For example, the ‘One Summer Isn’t Enough’ campaign highlights the diversity of experiences in Abu Dhabi for year-round travel.
Latin America & Carribean
The U.S. remains the top destination for travelers from Latin America, with European destinations like Spain and Germany expected to grow in popularity in the spring and summer.
Latin America's economic growth, driven by a rise in commodity prices, has positively impacted outbound travel. The region's emerging middle class seeks new experiences and connections with different cultures. Improved air connectivity between Latin American cities to other destinations and competitive pricing have enabled Latin American travelers to explore more international destinations, particularly in Europe. As Latin American travelers diversify their travel interests, the industry will have more opportunities to cater to their evolving preferences.
How tourism authorities can attract new visitors
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Business travel faces a unique set of challenges, recovering at a slower pace for most of the past few years than leisure travel due to remote work and a more uncertain macroeconomic environment.
However, growth in commercial flight bookings exceeded leisure travel for a portion of 2022 and is now recovering in tandem with leisure travel in 2023, up 42% year-over-year-to-date change from 2022 to 2023. 8
As companies try to control their costs in an uncertain macroeconomic environment, the full recovery of business travel in 2023 and beyond is potentially at risk. Despite these challenges, demand for in-person meetings remains robust, with commercial flight bookings well above pre-pandemic levels. We examined a cohort of countries that have a strong work-from-home labor market such as the U.S. compared to countries with a stronger return-to-office dynamic such as countries in Europe and Asia Pacific. From 2021 through March 2023, countries where more people returned to their offices outperformed commercial flight bookings by a wide margin compared to their more remote-minded counterparts.
By region, Asia Pacific and Europe led the corporate travel & entertainment (T&E) recovery, with growth in the number of commercial T&E-related expenses up 64% and 42%, respectively, between January 2023 and March 2023. 9
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As the broader economic landscape shapes tourist spending trends, travelers are driving demand for unique and memorable experiences over things. 10 The gap between experiences and things is even greater in economies that cater to high-income travelers who tend to spend more on luxury hotels, restaurants and unique experiences.
This presents new opportunities for businesses to innovate and adapt their offerings to cater to these evolving desires.
With mainland China reopening, the big question is whether there will be a similar shift in spending preferences towards experiences for travelers who traditionally spent more on things. Our measurement of experiences vs. things spending shows a variability depending on the market, revealing a fascinating new dynamic in 2023: the pace of recovery of spending on experiences vs. things is different in every market.
In Macao, for example, tourism spending on experiences returned to pre-pandemic levels almost instantaneously after restrictions loosened. In comparison, spending on experiences and things in Hong Kong has recovered nearly on par. In contrast, experiences-focused spending outperforms spending on things in most of Europe and North America, suggesting that travelers increasingly seek authentic experiences in destinations worldwide.
But the macroeconomic environment will continue to reshape tourists’ spending behaviors.
In 2023, as real wage growth turns less negative across regions as inflation declines, travelers may be more inclined to splurge on high-end experiences, such as luxury hotels and resorts and shopping. Conversely, travelers from areas where the real wage growth is negative or sluggish, such as Europe, are likely to seek value-for-money options. We’ve already seen European consumers trade down in discretionary spending categories, choosing cheaper brands in grocery stores, eating out a more affordable restaurants and flying more low-cost airlines. We expect them to continue to do so this summer, until wage growth catches up with inflation.
How travel companies can boost consumer spend and engagement
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Request a demoOver the last two years, travel’s recovery story remains strong despite macroeconomic trends and other major global events. This year’s story includes the impact of mainland China’s re-opening, growth in business travel, shifts in travel destinations and what travelers are doing while away from home.
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Footnotes
1 "Experiences" includes tourists spending at restaurants, amusement recreation activities, casinos, nightclubs, bars and other events. Excludes transportation and lodging spending. Represents analysis of aggregated & anonymized switched volumes (nominal US dollars unadjusted for FX) for leisure travelers while in-destination originating from mainland China.
2 "Experiences" includes tourist spending at restaurants, amusement parks, casinos, nightclubs, bars and other events, while "Things" includes tourist spending at convenience store chains, apparel, cosmetics, sporting goods, jewelry, footwear, bookstores, electronics, toys and department stores. Excludes transportation and lodging spend. Represents analysis of aggregated & anonymized switched volumes (nominal US dollars unadjusted for FX) for leisure travelers while in-destination.
3 Corresponds with the number of flight bookings made by leisure travelers during reference period relative to the same time in 2019. Based on aggregated & anonymized Mastercard flight booking data provided by third party partners, sourced by Mastercard Economics Institute.
4 "Experiences" includes tourists spending at restaurants, amusement recreation activities, casinos, nightclubs, bars and other events, while "Things" includes convenience store chains, apparel, cosmetics, sporting goods, jewelry, footwear, bookstores, electronics, toys and department stores. Excludes transportation and lodging spending. Represents analysis of aggregated & anonymized switched volumes (nominal US dollars unadjusted for FX) for leisure travelers while in-destination.
5 Mastercard Economics Institute estimates of savings in excess of "normal" levels.
6 Corresponds with the number of flight bookings made by leisure travelers during reference period relative to the same time in 2019. Based on aggregated & anonymized Mastercard flight booking data provided by third party partners, sourced by Mastercard Economics Institute.
7 Analysis based on the number of inbound international flight bookings made by selected region into destination markets displayed on the chart. Based on aggregated & anonymized Mastercard flight booking data provided by third party partners sourced by Mastercard Economics Institute.
8 Corresponds with the number of commercial flight bookings made during reference period relative to the same time in 2019. Based on aggregated & anonymized Mastercard flight booking data provided by third party partners sourced by Mastercard Economics Institute.
9 Represents Mastercard Economics Institute analysis of aggregated & anonymized switched volumes (nominal US dollars unadjusted for FX) for corporate travel & entertainment expenses.
10 "Experiences" includes tourists spending at restaurants, amusement recreation activities, casinos, nightclubs, bars and other events, while "Things" includes convenience store chains, apparel, cosmetics, sporting goods, jewelry, footwear, bookstores, electronics, toys and department stores. Excludes transportation and lodging spending. Represents analysis of aggregated & anonymized switched volumes (nominal US dollars unadjusted for FX) for leisure travelers while in-destination.
About the Mastercard Economics Institute
Mastercard Economics Institute launched in 2020 to analyze macroeconomic trends through the lens of the consumer. A team of economists, analysts and data scientists draws on Mastercard insights - including Mastercard SpendingPulse™ - and third-party data to deliver regular reporting on economic issues for key customers, partners and policymakers.
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