If you’ve been anywhere near a pool, beach, or European monument this summer, you may have noticed a travel boom that’s still going in the face of flight misery, deadly wildfires, and rising mortgage rates. Hotels have jacked up prices not only because of rising costs but because demand has been so strong after COVID-19—especially if Beyoncé or Metallica is playing in town.
But if you’ve also endured room service trays piling up in the corridors, infrequent room cleaning, reduced perks or the sight of a previous occupant’s underwear hanging off the balcony (don’t ask), you’ll be aware that hotels and other hospitality venues are skimping on expenses by cutting back on service. It’s the leisure equivalent of goods “shrinkflation”—charging the same price for smaller-sized products—and it’s deservedly under more scrutiny in hotspots like France, where prices have soared during another likely record-breaking summer.
With “revenge travel” already showing subtle signs of a slowdown, and with three-star accommodations in places such as Florence, Italy, now costing about $500 for two nights, maybe the post-Beyoncé effect will be consumers unleashing their inner divas over what they are receiving in return.
The shrinkflation and skimpflation trends began as COVID-19 lockdowns gradually declined and a stampede of revenge travelers discovered the “new normal” of vacation sites unable or unwilling to deliver prepandemic amenities. Staff were in short supply and management was focused on saving, not spending—which meant delaying basic repairs and pushing back the return of that tasty buffet.
Prices have soared since, buoyed especially by demand from American travelers armed with the strong dollar. Average daily rates in Parisian hotels are around double where they were in 2019 even as occupancy is about flat, according to CoStar data, boosting profitability and offsetting food, energy, laundry, and personnel costs. French hotel chain Accor SA recently reported a doubling of adjusted Ebitda for the first half of 2023, broadly back to 2019 levels. Global resort chain Club Med, owned by Fosun Tourism Group, saw its adjusted Ebitda rise 70 percent year over year.
Yet some staffing bottlenecks remain patently unsolved, as anyone who’s faced a receptionist doubling as lobby bartender can attest. More than 80 percent of hotels the American Hotel & Lodging Association surveyed this year reported worker shortages; in Greece, the tourism industry is struggling to fill jobs, even after relaxing employment requirements for migrants. Having shed 62 million jobs in 2020, the travel sector looks less attractive in a world where there are more alternatives to working long hours for low wages as a cook, waiter, or cleaner. Today, 11 percent of European Union tourism jobs are likely to go unfilled, while in the US it’s 7 percent. Running out of eggs has its own fix—just double up on bacon, apparently—but having no one to cook or serve them is when service really starts to suffer.
So one piece of shrinkflation comes from scrimping on wages, which can be the single biggest cost for hotels. And how those savings are passed on is harder to identify in a hotel. When buying groceries at the store, a sharp-eyed shopper might notice a candy bar’s portion size has shrunk by scanning the small print. But services are more difficult for consumers to instinctively measure, explains Pierre Chandon, a professor at French business school INSEAD. Our attention instead tends to be on nominal prices rather than cost shifts. For example: If a 60-minute massage listed at $60 is halved by 30 minutes, its per-minute cost has actually doubled. Yet this is probably less likely to provoke outrage than if the original massage is doubled in price to $120.
We may be seeing a tipping point for travelers’ acceptance, though. Overall satisfaction with hotels is positive, but scores for value and service are beginning to drop in a handful of European cities, as the chart below shows. Psychologically, consumer attitudes may shift away from revenge travel—where the pleasure derived from spending on experiences takes priority over price—toward the other powerful desire to avoid being ripped off. As one visitor to Corsica told French newspaper Le Figaro: “I haven’t eaten out this year, because I get the feeling I’m being taken for a ride.”
What does all this mean for the tourism outlook? The travel rebound won’t suddenly disappear: International arrivals to Europe are expected to end 2023 around 11 percent below 2019 levels, according to Jennifer Iduh, the European Travel Commission’s head of research. But the combination of softening demand and persistent cost inflation potentially doesn’t bode well, says Bloomberg Intelligence analyst Conroy Gaynor, who notes that jet-fuel prices alone have spiked 38 percent since the close of May. That will likely lead to more belt-tightening. “When the (post-COVID) desire to travel cools, it will get harder to maintain price increases,” says AlphaValue analyst Yi Zhong, adding that budget accommodation may hold up better.
One bright spot for hotels from this pressure may be more focus on better efficiency and more automation—think check-in, checkout, or ordering services using apps—to free up human resources. That might not sound great if it also means fewer staff in reception and increased tech glitches, but it could ultimately see guests spending more, as they do at self-service restaurant kiosks or with cashless payments. After this year’s Beyoncé effect, it’s time for tourism to sing a different tune.
