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September 8, 2022

Europe’s energy crisis will increase lodging costs and deter consumers

Lodging was expected to recover as vaccination rates increased and people became more willing to travel again.

By Globaldata Travel and Tourism

The rising cost of energy across Europe will force lodging providers to increase prices, which will deter guests. In recent years, the lodging sector has faced multiple obstacles to growth, most notably the Covid-19 pandemic and this latest issue will do little to alleviate pressure.

Energy crisis threatens to derail recovery

Lodging was expected to recover as vaccination rates increased and people became more willing to travel again. However, it faces yet another hurdle in the form of an energy crisis. Prices have risen across Europe since the autumn of 2021, owing to an increase in demand as countries lifted pandemic restrictions. Furthermore, the price increase is not equal across different countries and some are higher than others.

For instance, the UK’s energy bills are rising faster than many countries in the region. In the UK, the energy price cap rose by 12% in October last year, 54% in April this year, and is expected to rise by 80% in Q4 2022 (gas by 91% and electricity by 70%). To survive, the lodging industry will need to increase prices by at least 25%, assuming electricity accounts for 15% of a room cost.

Consumers are increasingly price-sensitive

Many factors, including the aftermath of the pandemic and sanctions against Russia, have affected the global energy supply and prices. Consumers who are still dealing with the impacts of the pandemic are price-conscious, something that has been exacerbated by the much-publicised cost of living crisis.

GlobalData’s consumer survey Q2 2022 reveals that 87% of global respondents and 85% of European respondents are concerned about their personal financial situation. Furthermore, 94% of global respondents and 92% of European respondents said they are concerned about the impact of inflation on their household budget. This shows that the consumers are increasingly price sensitive and might be deterred by higher prices.

European hotels should target the APAC region

There may be government support on the way to help tackle this challenge. However, we don’t yet know how European governments will react and, in the meanwhile, the lodging sector has to balance cost and services as the consumer’s ability to absorb price increases is, at best, limited. The European lodging sector should target APAC travellers as the region is the largest source market globally and might help hotels until support hopefully arrives.

The APAC region is home to 60% of the world’s population, with China and India contributing the most. Looking at the increasing middle-class population in the region, it makes it clear that the disposable income in this region is somewhat increased. The European lodging sector should focus on and promote its product in this market to limit the effect of the energy crisis that is impacting its traditional source market.

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