As a new year approaches, Phocuswright analysts are setting their sights on the future, particularly what may transpire in the upcoming 12 months.
Collectively, the team has their focus on advancements in electric vehicles, premium travel, growth in the Asia Pacific area, changes in administration in the United States, and, obviously, artificial intelligence, among various other subjects.
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Responses have been modified for clarity and brevity.
In 2025, luxury travel is predicted to experience substantial growth, propelled by a post-pandemic recovery and increasing wealth, with a transition towards tailored and significant experiences. To tackle the issue of overtourism, destinations will aim to attract high-spending travelers rather than mass tourism. Airlines globally will enhance their premium services, while hotel chains will aspire to establish more luxury establishments, and niche experiences such as adventure, wellness, and culinary tours will gain popularity.
The hotel industry in Asia Pacific will become more structured as the region’s rapidly growing economies and travel markets draw international hotel brands aiming to broaden their footprint. Even within the budget segment, local entities are striving to unify services and enhance quality by consolidating resources. This phenomenon will particularly accelerate in markets with strong domestic tourism, like India, China, and South Korea.
American perspectives regarding the outcome of the 2024 presidential election range from optimistic to pessimistic to neutral. However, one fact is evident: the incoming Trump administration has pledged substantial policy shifts. With both chambers of Congress under control and a conservative majority in the Supreme Court, it is probable that some of President-elect Trump’s agenda will be enacted. These anticipated changes encompass major adjustments in economic and tax policies, regulatory positions, immigration, climate and environmental plans, and international relations. As these alterations unfold, the travel sector should be ready to adapt to emerging opportunities and/or challenges.
Look for rapid developments in agentic AI. As foundational models and multimodal functions continue to advance, travel firms will have increasing opportunities to utilize the capabilities of autonomous agents.
In 2024, 39% of active travelers utilized generative AI in some manner, rising from 22% in 2023. At this trajectory, usage is likely to surpass 50% in 2025.
Online travel demand will fragment further, especially within Google as AI Insights influence more search traffic and as Google’s Gemini, OpenAI’s ChatGPT, and other leaders in LLM unveil deeper travel integrations within their chat platforms, starting to introduce highly capable autonomous agents.
The travel sector will begin to seriously contemplate the ramifications of the impending convergence of autonomous agents and digital identity, from the impact on distribution, marketing, and payments to implications for personalization, loyalty, and backend operations.
Funding for travel startups will recover from the lows of 2023 and 2024 (around $5 billion, down from an average of nearly $10 billion from 2014 to 2022), with the rebound fueled by lower interest rates, a complete resetting of company valuations, the rollout of new VC funds, and the maturation of AI-driven products.
For the hospitality sector, 2025 will largely center around generative AI, but the challenge will lie in how the industry can effectively harness its capabilities to tackle its most pressing issues. The applications of AI-assisted code development and AI-based customer service will make significant strides as models enhance, yet those seeking to resolve the challenge of itinerary creation & bookings will still face obstacles. The personalization and product-fit facets of travel purchases necessitate reliable sources of truth to manage persona and intricate itinerary dynamics with real-time access to inventory and fulfill best price eligibility—particularly across multiple suppliers and various closed groups. The fundamental work needed will revolve around improving industry data and systems interoperability.
The hospitality sector will come to understand that digital identity, privacy, and security for both consumers and properties must be addressed to meet traveler and regulatory expectations. The European Union’s Digital Identity Wallet initiative, launching in 2026, includes a travel application enabling citizens of its 27 member states to utilize their digital identity wallet while booking or checking into EU hotels. Hotel proprietors, managers, brands, and technology providers will have substantial preparations to make for travelers expecting a smooth hotel booking/stay/payment experience, akin to an Uber ride.
Demand for domestic travel is anticipated to rise in 2025, fueled by growing economic anxieties such as inflation and soaring international travel expenses. Travelers are favoring destinations within their own nations, focusing on affordable and accessible options while exploring nearby or less-frequented areas. Shorter journeys, including weekend escapes and staycations, are becoming increasingly favored as people seek distinctive experiences that circumvent the higher costs associated with international travel.
Trains, planes, and inclusivity. In Southeast Asia, high-speed rail (HSR) development will be a significant emphasis in 2025. Vietnam’s decision to approve an ambitious north-south HSR is expected to be followed by Indonesia’s approval of a significant extension of Southeast Asia’s inaugural bullet-train service—connecting the capital Jakarta and third city Bandung—to the vibrant second city of Surabaya. These are long-term transportation infrastructure initiatives, but anticipate more regional governments to reveal their own HSR agendas in the coming months.
Chinese aircraft manufacturer COMAC opened regional offices in Singapore and Hong Kong in October as it intensifies efforts to market its C919 narrow-body jet to carriers across Asia Pacific. Achieving the necessary certifications in the U.S. and EU will be challenging, making COMAC’s objective of competing globally with Airbus and Boeing unlikely.
any time soon. Nonetheless, it is feasible that we might witness the C919 soaring through Asian airspace beyond China’s borders in 2025.
Also, keep an eye on Thailand, which has recently become the third territory in Asia – following Nepal and Taiwan – to authorize same-sex marriage. This marks a notable progressive advancement for a Southeast Asian nation and will be selectively included in several of Thailand’s tourism campaigns in 2025.
It’s nearly impossible to forecast what will transpire in 2025 as AI evolves. Will AI agents shift momentum away from intermediaries and towards direct supplier channels? Will AI-enhanced search (Bing/Copilot, Perplexity, ChatGPT, etc.) capture a significant portion of Google’s market share? Are start-ups set to thrive, or will larger entities simply expand further? These are inquiries that are challenging to address at this moment, but based on the dynamics within the travel sector, we can draw some conclusions.
Those perceiving AI as the great leveler may find themselves disheartened. There are innovators with significant ideas, and many will secure funding to make their visions a reality; however, the established players in travel – Booking.com, Expedia, Google – will persist in capitalizing on advancements in machine learning, leveraging decades of data and sustaining their dominance from the top to the bottom of the sales funnel. Uber, Airbnb, the GDSs, and mega-TMCs will do everything within their power to endure, whether through partnerships, mergers, or acquisitions. Nonetheless, there is commendable news for new entrants and competitors. Funding is expected to loosen for start-ups as 2025 approaches, marking a year of substantial innovation. Secondary destinations, boutique accommodations, and distinctive experiences will thrive as they tap into consumer markets through new, more precise methods. Information will flow abundantly, and even if “personalization as promised” (e.g., based on user profiles, context, past actions) does not materialize as anticipated, every inquiry will be more tailored as consumers adapt to navigate generative AI. This empowerment, coupled with continued robust travel demand, ought to render 2025 a landmark year.
A surge of AI autonomous agents will enter the market from a variety of AI firms, utilizing travel as a proof of concept, beginning the shift from search to fetch as the new internet paradigm.
Blockchain will emerge as a method for cross-border payments and reduced-cost settlements. A leading airline collaborates with a major travel blockchain to implement blockchain payments and settlements across various travel sectors.
In a domain where size is crucial, OTAs will persist in consolidating. With Booking.com dominating most markets, competitors will be compelled to forge closer commercial connections (or even merge/take over) to achieve the scale necessary for survival. Anticipate the emergence of the first global alliance in the online travel sector, where companies from Asia, Europe, the Middle East, South America, and the U.S. will unite to create a more compelling supplier proposition, offering a comprehensive, high-volume distribution solution for businesses seeking to penetrate multiple markets. Niche players will continue to prosper but will niche down further to secure their survival, and when viewed collectively, will remain a minimal contributor to demand for the majority of suppliers. Third-party distribution will essentially become a contest between two major players (Booking.com vs. others), likely attracting heightened regulatory scrutiny.
Luxury tourism, which has seen accelerated growth following the pandemic, is set to sustain a robust development path in the upcoming years, driven by two distinct trends:
The first trend is a shift in desires among younger travelers, who are increasingly valuing experiences over material possessions. The YOLO (“You Only Live Once”) attitude is becoming more popular, especially among affluent individuals.
The second trend, closely linked to the first, highlights an increasing focus on comprehensive wellness. Although nutrition and fitness are already central to a healthy lifestyle, the next frontier is sleep and restorative rest. The widespread adoption of smartwatches that track poor sleep quality has highlighted this issue. Once the realm of specialized wellness retreats, initiatives aimed at improving sleep quality are now branching out into broader hotel categories. These establishments have acknowledged the demand and are implementing programs, products, and services aimed at enhancing the sleep experience for guests—at least during their visit.
Competition in the short-term rental market will remain fierce, and operators must enhance properties and amenities, diversify into alternative or supplementary revenue streams, or risk being edged out of the market.
While demand is robust, it is more dispersed than previously experienced – Airbnb saw remarkable growth in markets beyond North America, and our consumer research indicates that STR users are increasingly likely to travel outside the U.S. for leisure. Thus, while they continue to spend, they are not concentrating their expenditures in a single location. With numerous properties available, operators all compete for dwindling shares of the market. Of course, there remains substantial opportunity for success, but not all have aligned themselves with the necessary standards as of yet. Elements such as design and setup (properties adorned exclusively with HomeGoods items simply do not suffice anymore) and service quality must be elevated, or guests will seek alternative accommodations that suit their needs better. The principles for establishing an exceptional property are not novel. However, with slow-moving interest rate reductions, hosts who fail to elevate their offerings may struggle to find an easy exit strategy.
We are witnessing the emergence of electric vertical takeoff and landing (eVTOL) companies in the Phocuswright’s Travel Startups Interactive Database. I believe this heralds a transformative change in urban transportation. Companies and cities that adopt eVTOL aircraft and the requisite hubs to support them will be pivotal in reshaping the future of transit. This innovation holds the potential to significantly alleviate urban congestion and provide a sustainable alternative to traditional commuting. As regulatory frameworks progress and investments in infrastructure increase, eVTOL technology could become foundational in smarter, cleaner, and more efficient urban mobility systems.
Travel Forward: Data, Insights and Trends for 2025
Phocuswright’s Travel Forward: Data, Insights and Trends for 2025 offers extensive insights into the $1.61 trillion global travel industry, providing critical data for comprehending sector trends and growth.