According to the International Monetary Fund (IMF), the global economic recovery in 2021 was followed by gradually gloomier economic conditions in 2022 as the economic slowdown began to materialize. Several shocks hit a global economy already weakened by the pandemic, especially higher-than-expected inflation worldwide – including the USA and major European economies. Global economic growth in 2023 was driven by emerging and developing economies which are expected to maintain solid growth in 2024 and 2025. In contrast, mature economies (excluding the USA) experienced a slowdown in 2023, with growth dropping from 3.1% in 2022 to an estimated 0.9%, with only a slight improvement expected in 2024.
The growth of the world hospitality and tourism industry has been influenced by access to information, an increase in the amount of paid leave, and strong demand for leisure travel. Indeed, the use of the internet as a source of information, the ease of mobility and increased awareness of new destinations have transformed the way that consumers travel. The rekindling of business travel is a more complex issue. In line with these dynamics, leisure travel is expected to make a significant impact, with projections indicating that it will increase to an impressive $300bn dollars by 2024. This trend highlights the growing yearning among professionals to combine work and leisure, creating a unique and enriching travel experience (Euromonitor International).
Although the US economy experienced a quick recovery from the pandemic, the upswing in demand stressed supply chains and caused inflation to rise sharply. In 2023, the US economy continued to grow but more slowly. The Gross Domestic Product (GDP), adjusted for inflation, rose at an annual rate of 1.1% in the first quarter of 2023, according to data from the US Commerce Department. Likewise, GDP recorded 1.6% annual growth in the first quarter of 2024. That figure came in well below expectations, marking a sharp decline from the 3.4% annual rate measured over the final quarter of 2023.
Looking into 2024, analysts anticipate that the US economy is likely to continue its slowdown. The main factors affecting this economic outlook include persistent inflation and geopolitical tensions such as conflicts in the Middle East, the ongoing war in Ukraine and tensions between US and China. Inflation has fallen significantly from a peak of 9.1%, but it remains more than a percentage point higher than the Federal Reserve target of 2%. The Fed recently decided to hold its benchmark interest rate steady, postponing highly anticipated rate cuts. The slowdown has overlapped with persistent inflation, putting pressure on the Fed to keep interest rates high despite the risk of impeding economic activity with high borrowing costs. Accordingly, the economic outlook is uncertain, and economists are highly attentive to inflation risks. They anticipate that price increases will start to slow down again in the months to come. As inflation and interest rates decrease later in 2024, a rebound in consumption is expected and thus, policymakers have generally been comfortable with the economy's resilience.
Even with the Fed keeping interest rates high, travel demand remains strong in the USA, and travelers are booking more stays than ever, despite staffing shortages and other challenges impacting the hospitality and tourism industry. Convention and conferences are driving hotel performance with increasing group demand along with luxury and upscale hotels attaining their post-pandemic peak.
The hospitality industry labor market has been characterized by its contracting workforce since the pandemic. This is resulting in an increasingly competitive landscape, highlighting the need for innovative strategies for recruiting and retaining talent. These staffing challenges have slowly and progressively been improving. A recent survey conducted by the American Hotel and Lodging Association (AHLA) indicated that as more than two-third of hotels continue to experience staffing shortages, hoteliers offered more pay and a host of incentives to attract and retain talent. This resulted in 82% of respondents receiving increased wages, which hit a record-high in December 2023 for the hotel industry. In addition, 59% of hoteliers offered greater flexibility with hours and 33% expanded benefits. Nonetheless, 72% still stated they are unable to fill open positions.
When looking at the hospitality labor shortage, the restaurant sectors have had the highest number of job openings. Nonetheless, it has been struggling to retain workers and has experienced consistently high quit rates. According to the Bureau of Labor Statistics, 6.7% of hospitality and leisure workers left their job in February 2023. The turnover rate, however, has decreased since the COVID-19 pandemic, which had a an especially negative impact on the industry.
The rapid development of artificial intelligence (AI) technology is leading to transformations in many sectors, including the hospitality and tourism industry. AI presents opportunities for improved productivity and innovation in the hospitality and tourism industry. It has great potential for personalizing the guest experience and restructuring hotel operations. It is expected to benefit many hotel services, such as reservation/reception processing, guest relations, communication, marketing, sales strategies, pricing, security and more. However, the challenges include potential job displacement, the need for re-skilling, and the ethical considerations of adopting AI.
Certainly, AI offers opportunities to provide better experiences to hoteliers and guests, increasing efficiency, internal controls, and better management of operational processes. Some hotels widely use chatbots to provide their guests with fast, effective, and accurate information. For example, AI-powered chatbots can give information about reservations, room services, and attractions. In addition, voice assistants can assist guests with check-in/out processes and reduce staff workload. AI can also predict room demand based on historical data. This can result in more accurate guest projections and optimized room rates. In addition, AI-supported automatic control systems are used to increase hotel energy efficiency. These systems can automatically adjust factors such as general lighting, air conditioning, and water temperature, providing significant energy savings.
Despite the increasing use of AI and other technologies in the hospitality industry, experts consider human interaction will still play a vital role in delivering optimized guest experiences. Thus, successful hotels as well as the other segments of the hospitality industry recognize that striking a balance between pioneering hotel technologies and the irreplaceable value of the human touch will be vital for the industry to thrive.
As technology evolves, hotels embracing these advancements while preserving human contact will be best positioned to prosper in the future. Further advancements in AI will lead to more widespread adoption in the hospitality industry.
In summary, the hospitality and tourism industry is currently facing many challenges: balancing staffing, rising costs, technological tools, and evolving consumer demands, among others. For the period of late 2024 and 2025, a return to pre-pandemic activity is forecasted, with growth rates stabilizing, inflation projected to gradually decrease to the Federal Reserve's 2% target rate and the labor market showing signs of moderation. However, geopolitical risks including conflicts in the Middle East and the ongoing war in Ukraine also create substantial threats to global economic stability.
Despite challenges impacting the hospitality and tourism industry, academics continue working diligently on their research. I am delighted to present the new issue of the International Hospitality Review (IHR) for your consideration. We sincerely hope that you enjoy reading the articles of Volume 38, Issue 2 of the IHR.
Elisa Moncarz
Consulting Editor, IHR
Professor Emeritus
Chaplin School of Hospitality & Tourism Management
Florida International University
