STR Outlook 2026: Why Travel Demand Is Strong Despite Economic Uncertainty

Welcome to the STR data lab. Hello and welcome to the STR data lab. I'm Jamie Lane, chief economist at RDNA, and I've got today a guest, the president of tourism economics, Adam Saxs. Uh Adam I've known for a long time. uh is a expert in uh the travel uh economy. Um has been a speaker at just about every every conference I've ever attended. Um and so insightful around what's what's happening. I I learn a lot from him and really excited, Adam, to have you on the show. So, welcome,

Jamie. Thanks for having me. And I apologize for all the times you've had to listen to me talk over the years. I I I've stolen more uh than I'd like to admit. Uh but uh I unfortunately missed you at two big conferences this year. One was the Hunter conference and I like just got there after you presented uh which I was like trying to get in um just to see you speak and then I missed the uh NYU conference as well. So, uh, an NYU conference just ended. For those listening that don't know what it is, it's one of the big hotel investment conferences. Usually, uh, tourism economics releases their new summer forecast for the industry. Uh, and we usually get a good sense of how we were wrong about the economy sort of going uh, that we presented at Alyss uh, which is the other big hotel investment conference. So maybe first question for you Adam is how was the industry wrong about how 2026 was going to be?

I since like how's 26 playing out,

right? Well, I mean 2026 is surprising us on the upside. So um just for the first four months of the year, hotel Building an AI app with YouTube data? YouTube Transcript API → LLM-ready text in one GET request. Try Free — No Card → rooms sold are up 2%. And uh and so that that momentum in 2026 is sort of defying a lot of other things that are going on. Consumer sentiment is at historic lows like never before as low as it is right now. And people are buying more hotel rooms than they ever have. Okay. So that's that's the dichotomy of the world that we live in. And so that of course does affect our you know we're always incorporating the latest history trying to understand the dynamics of what's going on in different segments and and that did cause us to revise upward our our revar forecast 2.8% growth for the year. Um it's still I mean the story doesn't change a whole lot right I think people interpreted that as a massive upgrade by about you know 100 basis points but that doesn't really change the story.

It's it's it's still modest growth when you look at inflation pacing at 3% that refar is 2.8. Look, we're still losing ground in one sense. And so, um, so yeah, you know, we we revised upward, but I think the story of of modest growth is maybe revised a bit with a sense of the resilience of different segments particularly, you know, group and business um that are driving growth right now. And that is in the context of 2025 though where I think it was the first year uh that we saw a revpar decline where overall US economy was still expanding. Um and like I think it was correct me if I'm wrong like every forecast update last year was a revision down. So the year started pretty optimistic uh and then deteriorated throughout the year to a negative for the full year. So uh one like what do you think happened in 2025 that's and changing in 2026 and and do do you think the consumer has changed or is 2026 just easier comps to like go against like we couldn't get any worse.

One of the things in 2025 that um at the very beginning of the year we didn't anticipate but then we revised our forecast once we saw things beginning to happen was that that international travel to the US turned south uh as a negative very quickly and very sharply and and we we we made that first revision in February as a downside scenario but not as our baseline. That is if the administration, the White House administration continues on policies that are uh that are devices divisive and rhetoric that seem that that that's perceived as unwelcoming that international markets would react negatively. Um by the time we got to late spring, that became our baseline forecast. And so, uh, that did materialize and and so with, you know, overseas travel down last year 2 and a.5% with Canadian travel to the US down 25%. That shaved off by itself a half% off room demand. And so that that was a significant cause of the revision.

And I think we're we're also just reckoning with the fact that that economic activity and hotel room demand are not as tightly connected as they once were. And so there are other things that are driving it. Right now um the uh the nature of the K-shaped economy is driving it. So we're seeing the growth on the upper end and resilience uh in terms of rate because of that. And so those are the sorts of things we're starting to look at trying to get a finer point on individual market segments, types of types of travelers, purposes of trip, um, as well as international travel to get a better read because just tracking against the economy isn't isn't going to get it done in the current state of affairs.

Yeah. And and just for a level set when we you talk about the hotel industry can you give a sense of like what's the share of these different aspects like what is and sort of transient leisure what is corporate business what is international like what what is the breakdown of the US hotel industry

Jamie I'll I'll give you my you know kind of rough rough estimates from memory so we we peg international at say you know 7 to 8% of of uh total room demand. Um for all of you middle schoolers out there we'll say now it's six to seven uh percent. Um and uh yeah and then then leisure that leisure or I should say the transient market which includes both leisure and outside the block business. um you know that's that's roughly you know call that 65 to 70% and then the remainder is group right and then there's a small bit that's contract which doesn't really factor but um you know what we've seen is is uh as corporate profits have been real strong the uh the group and business side has been seeing a resurgence which of course is welcome um you know leisure came back faster out of the pandemic uh group in business has been slower out of the shoot, but now it's finding its footing and that that's where hotel companies are reporting the growth.

We're seeing that in the data as well.

Yeah. So, you you mentioned the K-shaped economy and and economists loved their letters and we saw the V-shaped economy or V-shaped recovery. we now see and the K-shaped divergence and something I've been ruminating on and want your opinion is like with and the massive productivity gains that we're getting from AI like and you sort of think back to and sort of the emergence of leisure travel over the past 250 years and it was broadly productivity driven um but it feels more and more like the productivity gains are accumulating to the top um income earners uh whether it's um and the top companies whether it's the and people that run those companies and then when you look at and what's happening in terms of overall spending uh it is the top 1% the top 20% that's generating the vast majority of of economic output. So a long a long question to say is like and as you look out in your crystal ball and do you think like a lot of the gains that we might see over the next five years are just it's going to continue to accumulate um and continue to and be the K economy maybe on steroids or do you think the productivity gains are going to sort of and spread out to the rest of consumers eventually?

That's a pivotal question. Um, right now the that disparity between winners and losers is ongoing. So I do not in the immediate future see any reason that we're going to see a change to the story that the upper end of income earners are going to continue to drive hotel performance. Now, the the silver lining to that is that the hotel industry um and I and I would argue the short-term rental industry as well is is well overindexed to higher income households. And what's interesting is that over over the last seven years um from 2018 to the latest year of data anyway, the the number the the share of all households making at least $200,000 a year has increased from 6% in 2018 to 11% of all houses in 2024.

And that's one of the reasons that that income group, $200,000 or more, now represents 36% of all household spending on leisure travel, right? And um that's up for 25%. So, so yeah, it's concerning for a number of reasons, but the hotel sector and the short-term rental sector is in some sense a beneficiary depending on where you're positioned in the market, but overall a beneficiary of the fact that the strength of the economy is being experienced by our most lucrative and frequent customers.

Yeah. And and Jane maybe just to extend ask my own ask a question rhetorically. Why why don't I see that changing? Um well one reason is because gas prices are still you know within touching distance of $5 a gallon for regular like and and so that hurts lower income households much more than it hurts upper income households who who spend proportionately much less on on you know putting gas in their tank. Um add to that fact that um the one big beautiful bill has boosted tax refunds and of course that favors uh upper income households. Um and then um and then add to that what's going on in equity markets. And so you know the top gosh the top 1% of income earners have seen an increase of their net worth uh to the tune of of a a doubling of disposable income annual year annual disposable income. Uh 100% of that added to their net worth in the past year. If you're in the 80th to 90th percentile of income earners, you've seen a 40% increase uh in your net worth as a share of disposable income.

And so all of these things are continuing to accentuate the K-shaped economy as opposed to mitigate it. Um I don't think it's until 2027 that we begin to see that sort of rising tide lifts all boats benefit. Uh that that we'll where we'll see some of the strength on the lower end. So that that is and in a lot of ways when I talk with and people of like what why sort of it looks like as of today hotels are outpacing uh short-term rentals in terms of growth is is and I think you said 2% growth uh for hotels so far year to date short-term rentals we're seeing 1% growth. Uh we do see short-term rentals much more indexed to leisure travelers and we had done a lot of research actually during the pandemic of and during and specifically 2023 and 2024 when and consumers were starting to get hit of like a trade down from hotels or short-term rentals. Um and now it looks like a lot of those lower income travelers are just and deciding not to travel at all.

uh which definitely um and given the sort of um rising uh cost of goods uh uncertainty around the economy the the weakness around uh consumer sentiment. Uh my question to you is you think about and sort of risk the economy. It it it does feel like there's a lot of upside and with the AI economy, the amount being spent on capex uh around AI, but like how much can the US consumer hang on and in the face of and uh and higher gas prices, the uncertainty, the um and weakness in the labor market um and all the headwinds out there like and in your scenarios like and what's happening now like do do you see like if the war continues on through the summer that we're able to uh not go into recession

right um yeah a lot of great questions in there I mean I'd start by just saying that our our forecast for US GDP in 2026 is for 2.2% 2% growth in real GDP. That's a downward revision from what we expected before the war in Iran began instead of been February where we expected growth of 2.8%. And so that's the downgrade entirely the effect of the uncertainty and the erosion of purchasing power from gas prices. Um and so that does that does dodge a recession and um you know the US economy has proven incredibly resilient but we are seeing credit card debt you know begin to mount and that of course is on the lower end as well. Um, but the thing that's holding us up is a a remarkably stable job market. And so the unemployment rate in the US now stands at 4.3%. 4.3 and and and that's that we think is we're going to hang out around there. I mean, it it it it's probably going to go up to, you know, don't be surprised if it goes up to 45, 46, even 47 before the end of the year.

Um but the reason we don't think it's going to get into sort of the recession territory where you know you know you and I both remember unemployment you know in the 7 8 9% range uh at different recessions um we don't think we're going to even get near that. One of the reasons is that the labor force itself is constrained and that labor force is constrained uh partly because of immigration. So net immigration is uh it's barely growing now and um and so you kind of have job even with job growth expected to slow as we go through the year the the labor force is growth is going to be pretty modest. So the unemployment rate is going to stay under control which means you're not going to get recession conditions most likely. Um what's the risk though? I mean the risk is that if the straight of Hermuz is still closed um in a month from now and oil is is still up some you know 40% over a year ago um that that's going to put stress on the US consumer that will then flow through other areas of the economy and and our downside scenario where the US does enter into a modest recession becomes a higher probability and and at some point this summer if things are not resolved would become our baseline scenario.

That that is that is concerning to say the least. And the the other concern I've been looking at and and you take a global view as well is just um what's happening on both inbound and outbound US travel. We've been reporting and you've been reporting for the past and and year on the decline in in inbound to the US um and in and obvious reasons there uh why that's been playing out. Um but and how how concerned are you that and with gas prices with higher travel um uh costs that and we're now starting to see some pullback on um US departures and to uh international destinations like is that a a a early warning sign? Is that just geopolitical turmoil? Like what what what do you see as the the signal there?

I think as we get to the second half of this year, we should see international travel to the US begin to grow, right? So, it'll start in June with the World Cup um and um and we think, you know, part of the reason for that is is some of the downturn in 2025 um is going to be the experience as a postponing of trips to the US, not a full-on cancelling, especially from Canada. And so that 25% drop that we experienced last year um as as the Brits would say is going to be followed by a dead cat bounce. And so um that dynamic I think we're going to see modest growth. It won't be enough to recover the losses of 2025, but we should see growth in the second half of the year. Outbound travel then um we also are seeing weakness. is down 2% in each of the last two months. Um it's not a big drop but it's enough that the the net effect of in and out becomes positive for the US economy instead of negative.

Right? So I mentioned earlier that that international travel was a half percent drag on room demand growth last year. Um it is likely to be a a net positive impact with uh kind of the reshoring of US resident outbound travel to domestic trips and and with that rebound, albeit modest, we're not going to get back all all that was lost last year. And we'll still be uh you know I think when all is said and done, we'll still be about 12% behind 2019 levels. Um we've still got a ways to go before we even even hit where we were in 2019. Um but uh you know it's choosing choosing to see the uh you know the silver lining here at least will no longer be in a slide and the assumption there is that that uh you know travel does resume of course there's there's risk to that and um you know I've been over over this past year um you know more than willing to call balls on strikes on on policy errors of the administ ministration because I think they have had a appreciable uh and damaging effect on the US travel industry.

Yeah. And how do you think that that impact is and gonna be long lasting? Is that something that and and tariffs like if they go away uh tariffs or and rhetoric if it it sort of changes like that and as you look at the data back through history that it could bounce back quickly or is this u something that has long-term lingering effects to uh inbound travel? We've pushed out our forecast for full recovery to 2019 levels out to 2029. That's 10 years in between uh you know a drop and then recovery just to that previous watermark. And meanwhile the whole global economy has moved forward a decade. That's not good. And and and so yeah, it's going to take time. Uh and you know what one of the negatives here is that when people do forgo a trip to a place they go somewhere else and people are creatures of habit, right? So um so now you've got new places that people have experienced that they may return to and and you've got to compete against that because travel patterns have diverged away from the US.

So yeah, I do think it will take time. Um I think that the US will always remain a you know a globally aspirational destination and and so the opportunity for for sales and marketing efforts I think remains substantial but um but yeah I think we need to settle in for a little while. I mean, people sometimes I'll get asked by journalists, well, you know, do we need to wait until there's a a change in the White House? And um it's difficult to say, right? Um I I do think that this administration could turn things around um simply by uh eliminating the unforced errors. I think tariffs are no longer the damaging effect that they were once in terms they were uh like a year ago when it would just seem so combative tariff policy and you know retribution that seemed to be like just below the surface in tariff policy that seems to be less of an effect. I think I think things like threats of social media monitoring of you know concerns about entry policies of additional fees um you know the unpopularity of the war in Iran these sorts of things I think will remain a headwind at least at least for the coming year.

So you you work with a lot of destinations um and helping them understand the performance of their markets and inbound, outbound, all that sort of stuff. And I got a sense going into the year that there was a lot of hope that the World Cup would be this event that could sort of reposition the US as a destination for international travelers. and we are going to see probably the largest number of international travelers into the US that we've probably ever seen uh because of the World Cup. Um so, and we're a week out from and kickoff. Uh what what are you seeing? What are you hearing and talking with different destinations? Like do you see this being the sort of tourism windfall that we all expecting? Uh do you see it lagging? like what what have you been seeing?

Right, Jamie? I remember your um your LinkedIn post that amounted to don't panic, right? Was that the point of your your LinkedIn post because of late?

That was the point. Yeah.

Yeah. Oh, I thought that was well phrased. And so late late bookings are absolutely a thing for for these events. Yeah. It's going to be massive for the host destinations and and as we've seen before, it's mostly on rate. um you know in terms of proportions right um you know volume volume will increase but rate you know by you know whatever it is maybe you know you could see a 10% increase but you're going to see like you know 100% increase in rate and so so the the benefits to the lodging industry will be primarily on rate you know you you said something to the effect of you know we'll see more international visits than ever before I don't think that's actually true No.

Yeah. Yeah. And this is where we've we've sort of gone counter narrative. Uh um you know, we've gone it was certainly not for the year, right? Could it be for you know, a two week period?

That that's what I was saying like during that two week period like reach a new high for inbound. Uh

yeah. Yeah. No, that that could actually be the case. That that'll be interesting to track. Hadn't thought of it in terms of that finite a period. Um, I don't think

I I'm searching for straws here. Like,

no, I appreciate that, man. We could all all use the win. Uh, but I think for the month of June, you know, we'll it'll be a great June. There'll be growth year over year in international travel. Um, we see that in the forward bookings of air travel right now. Uh, it probably won't be near, you know, where we were in 2019, but but it'll be substantial growth for the month of June. In fact, um my forward bookings data from OAG has as June as of the end of April booking international inbound bookings pacing uh slightly up relative to last year. Um and uh and so so yeah, I mean it's going to be a great start to the summer, but as I look out to to July in terms of the pace of air bookings, um things are things remain relatively weak. But but I will say this, Jamie, like you know, I'm I'm sitting here looking at different different charts while we talk and um one of them that I shared at the NYU conference this past uh Monday was uh data from Travel Click that showed booking pace for the coming months and um you know so this includes domestic and international and as of the end of May uh June is pacing 4.7% ahead July high 5.2% ahead of August just about flat and then September up 7.4% pacing above last year as of the same time kind of stopping at the end of May.

So, uh, you know, rooms are filling in at a good pace. And so, it's, you know, another reason that you just come back to this reality that, um, one, businesses are traveling because they're making a lot of money. Um, households are traveling because the ones that travel the most are the ones that are doing the best and experiences remain a uh a priority for households over goods. I don't know if you've you you saw this. I mean, new car sales have plummeted in recent months and and it's a great it's sort of exhibit A for experiences over stuff and I think that's one of the things that is is keeping a floor under us.

Yeah. You have any plans to go to a World Cup game this summer?

Uh, I may do something spontaneous. I have a soccer player in my house and uh um and he's actually gone off to play college soccer in the fall. So, it may if I find the opportunity, yeah, I may show up at game and Philly.

Yeah.

Yeah. And it as an economist like it it I always love the analysis people do around the sort of loss productivity that happens during these global events of like you start looking at the schedule and it's like all right starting at noon like every day for like a a entire month period we're going to have four games every day like uh it it feels like I know if I'm not going to be working if I'm going to be watching game might as well take a trip while I'm doing it too and watch it from some great destination.

Right. Right. I mean it, you know, that it does it does go back to the the question of what is what is AI's effect on productivity just to do something less fun than the World Cup. Um yeah. Yeah, we're going to miss a couple days because we're going to be glued to our our screens uh watching some of these matches. But uh I don't think you'll see that in the data. what what you will see and uh is the the fact that you know adoption of AI is still rapidly increasing right and as we're tracking data of what is what is AI adoption right now by sector of the US economy and what is it expected to be six months from now and this is based on based on survey data and it's it's really striking how quickly adoption continues to gather force um you know so for example uh in finance and insurance I'm just picking one right now um 40% of firms um weighted by implement say they're they're actively using AI um but six months from now the expectation it's going to be over 50%.

And and so uh and we see that that sort of acceleration across all industries and you know our our company is you know actively implementing AI solutions across every part of our business but we're also learning as we go and finding new opportunities to utilize it and to improve the quality of what we do as well as the efficiency on how we do it. And so that that translates directly to productivity. um we as a company Oxford Economics or parent company take the view that that at least in the you know say the medium-term that AI will be more labor augmenting than um than kind of labor eliminating that is if you take AI as with any you know any advance in technology it there's creative destruction and then the question becomes you know how much is it how much does it create and how does it destroy?

And and our view is that that it's going to create more than it's going to destroy. Um that has always been the case. Of course, AI is unique in a lot of ways. But um but I but I think we uh you know, so far our experience is that um you know there's going to be a shift, right? There's going to be a shift in how we work, what we do. I think there's gonna you know I was telling somebody the other day like like I know like in in just shorter than shorter time than we can imagine like you and I are going to say can you believe the stuff we used to actually do like I used to actually make charts in Excel I did that with my hands and we're going to be dumbfounded that we used to waste our time on things like that or I used to read you know entire papers to try to clean what was in before I could do my own work. Um, and uh, you know, like the way I used to say, you know, I used to mail three and a half inch discets to clients

w with the latest forecast and then have to, oh man, we made an error. We got to we got to mail a new one.

Mail a new one. That's right. Like like Yeah. Like my Gen Z colleagues are like, "What in the world is he talking about?" Uh I I did have if you have it in front of you like what about on hospitality and the use of AI because that is and a whole another question of and we sort of and sit in the service sector um and industry I it's it's in many ways until Elon's robots start uh coming off the line it could be much harder to see some of the productivity gains that maybe some of the other fac uh sectors in industry. I mean what have you been hearing on the hospitality side?

The data that I have groups accommodation and food services. So that's how hospitality is defined in economic data. Um and so it's it's hotels and restaurants and and so that masks it a little bit because the restaurant industry is much larger than the hotel industry. But nevertheless, I think it's still instructive and as you might expect, adoption is lower than in uh actually the majority of other larger industries. Um so right now adoption within again accommodation and food services is around 12%. right expected to to go up to 15 within six months. And I think there are some natural limits because of you know the extent to which the the workforce within restaurants and hotels isn't going to have a lot of use for for AI um you know at least at the operations level.

Yeah, that makes sense. But and hopefully and sort of getting back to one of the other comments was around the and if we do increase productivity and we do give ourselves more and leverage in terms of our time hopefully higher incomes like that that would and circle back into more spending on services more spending on experiences and um um uh with the time gained uh from that productivity gains.

I think that's right. Um I think it does likely accentuate income disparities right and um because those you know to the extent that AI is improving productivity yeah there'll be wage gains across the spectrum but there'll be particular wealth gains at the upper end because those those with you know with equity within companies um they're going to be you know in a much better position to you know to to gain financially from those gains in corporate performance.

Yeah. So, last question, and this is a question I wanted to ask you when you're in Atlanta, uh, but you've been doing this a long time, much longer than I have, uh, and like it just feels like, and maybe felt it a little bit in the tone that like things are like super uncertain right now. Uh but you've seen and 9/11 the financial crisis COVID like and in terms of like your crystal ball and your sort of underlying certainty on how you feel about the economy, how you feel about the outlook of travel like can you just put some context around like and you your sort of optimism and sort of your in in your outlook over the next few years? Yeah. No, glad to reflect a bit. Um any downside scenario that that we've drawn out and modeled out um say an extended a protracted war in Iran um or you know a widening of that conflict um and therefore elevated fuel prices for the remainder of the year. Um a stock market correction you know with a you know with a run on technology stocks, right?

Those those are the two biggest risks. If either of those two things happen, the US will go into a recession. Um but likely a mild one and and we might see you might see you know a single digit slip in demand and you know and rate plateau. We can totally live with that, right? We could totally make it through that. And you know when you think about what you know what the financial crisis great financial crisis did to the lodging industry and and of course what co did and um and so we're looking at something that you know in our worst case scenarios at least what we can see as real risks um they're not that bad historically. Um I also think that there when I look at our forecast I think there's upside risk to it that things could turn out better than what we're expecting and one of the reasons is that um I think that there's there's rate potential because of the nature of demand um what what we're learning more and more is that uh at least on a market level lodging is quite inelastic to to changes in price.

Um, of course, if you're one hotel, uh, it's hard to be, you know, it's hard to increase your rate against your comp set, but I'm just saying like like marketwide, it's not like, you know, if you if you were to get rate of 5%. It it's un you're going to be net up if the market goes up 5% in rate. And so, uh, I think revenue managers and and re revenue management software, um, is is working from those assumptions more effectively than ever before. And so that's one of the reasons that I actually think things could turn out better from a red bar standpoint is because of rate, that the rate could grow more than we've we forecasted. Um but if things keep going as they are right with the strength on the corporate side and the resilience on the leisure side and the you know the what we do think is a pending uh you know turn a slow turn on international you know we should see continued growth uh even with everything that's getting thrown at us you know my my last presentation I I titled it of of tailwinds and turbulence and those two forces are are very much in play um with the tailwinds of income growth and a resilient labor market, the priorization of experiences, etc.

Um and then the turbulence of everything that's going on around us with higher high fuel prices, low consumer sentiment, high inflation and and my my take-home point and I try to keep it simple for my own sake is that that we do think the most likely scenario is that the tailwinds prevail over the turbulence. So, just fasten your seat belts and uh and we'll get there.

Well, I feel like that's an excellent way to end it. Uh Adam, uh thank you so much for joining and I hope listeners enjoyed it as well. Uh and I'll uh see you around, I'm sure, uh sometime in the back half of 2026. Thank you.

Yeah, no doubt. Thanks, Jamie.