Luxury tourism: big hype chasing small numbers

Castle Hotel, Huntley, Scotland.
A perfect luxury destination: authentic, low-key and secluded

So, you are selling luxury travel! How's business? I mean the real numbers, the ones only your accountant gets to see. Yeah … I know, it is very competitive out there. Instead of following the hyped-up press releases, go for a reality check and dig in the obscure and boring luxury travel statistics. Granted, they are hard to come by as the luxury travel tag gets slapped on anything from the true 5-star experience to the overpriced package that could not possibly sell without it. Even hotel class ratings are not comparable from one country to the next, and that is only for the very few countries that do have a formal rating system. But after I show you the facts, I will also point out overlooked opportunities.

Fact #1: The luxury segment serves less than 5% of the market and accounts for less than 10% of the revenue. Looking at the French government statistics from INSEE and DGCIS, because France is a major tourism market with detailed statistics and they have a new hotel rating system that reflects current market demand, 5-star hotel rooms accounted for 3.42% of all hotels rooms in France and 9.85% of the revenue. The numbers are roughly the same all over Europe, except Switzerland where it is a little higher. For Asia, data sources are more diverse and rarely statistically comparable, but they are not far off the European numbers. Airline class distribution reflects a similar market share with less than 3-4% first class and a total of about 10% “premium” meaning to include both first and business as first class is not available on every sector. Same for restaurants, cruises, etc. The bottom line is that the luxury segment is less than 5% of the customers and less than 10% of the money.

Fact#2: The target audience, called HNWI these days … what a horrible acronym … is very elusive when it comes to buying travel because they mostly buy by reference and through channels that may seem far removed from the luxury segment. By reference because their social network tends to be more global, thus with better remote connections, than the not-so-rich. Through unexpected channels because of their business activity where most of them are connected in some ways to corporate entities as board members or some form of ownership. More often than not, their bookings will go through a corporate travel office because of trust, confidentiality and ... it's easy! So, the odds of them coming knocking at your door because of glam brochures and intensive press releases are about nil.

Fact#3: They are expensive to cater to! They may not fuss about the price, but they will expect the full value of their purchase, and sometimes much more. Don't get me wrong, most of the affluent clients I have handled on travel were easy going and not at all demanding. Really wonderful people to cater to as long as you met their expectations. And that's the part often overlooked: expectations can be very expensive and turn a juicy contract into a sea of red ink! Luxury travel pricing requires eye-popping contingency reserves.

Now that we have the facts straight, let's see the opportunities. Right below the luxury segment is the executive, business or premium segment. Quick stats: 4-star hotels in France account for 21% of the total rooms and 35% of the revenue. Which is just about the same ratio in the global tourism market (20% and 33%). It's not glamorous and does not seem to generate as many press releases as the luxury segment does, but it's good margins and more repeat business.

And, assuming you decided to cater to that segment and build up your corporate following, the inquiries for luxury travel will come in from the corporate travel desks and satisfied executives … “We have a board member and his family ...”.  There, now you have the inside track to luxury travel.