Why Are Travel Costs Soaring? Experts Explain the Global Impact on Tourism in 2025

Published on December 23, 2024

Inflation and Increased Holiday Prices

The travel industry is witnessing a significant surge in costs for airfares, hotels, and other travel-related expenses. As travelers plan to resume their post-pandemic vacations, they are facing a major challenge: rising prices. The inflationary trends affecting economies globally are directly influencing the prices of flights and accommodation. The impact of inflation is exacerbated by the geopolitical instability in Eastern Europe and the Middle East, which has led to rising fuel prices and supply shortages.

According to Eurostat, the cost of a European package holiday rose by 6.6% between July 2023 and July 2024. Similar price hikes are expected across flights and hotels in the coming months. This increase in travel expenses is not just a temporary spike but part of a broader trend affecting global tourism. From 2025 onward, travelers will also face new costs in the form of tourist taxes, which are being implemented by many destinations around the world. The rising costs could challenge the affordability of travel, particularly for budget-conscious travelers.

What’s Driving the Increase in Flight Prices?

Flight prices have seen substantial increases, driven by multiple factors. The UK government has announced that air passenger duty will rise by 15% for all passengers over the age of 16 starting in 2026. This increase is being justified as a response to previous high inflation rates. For short-haul and domestic flights, this increase may appear modest, but for long-haul and mid-haul flights, the rise could be as much as £102 or £106 per person, adding a significant burden for international travelers.

Other countries are also taking similar steps. In France, the aviation tax is set to triple by 2025 to help address a growing budget deficit. This will make long-haul flights more expensive by up to £33. In Denmark, a new flight tax will come into effect as part of the country’s green transition efforts, with the tax phased in gradually, reaching up to £45 by 2030. These additional taxes, while paid by the airlines, will inevitably be passed on to the passengers.

Supply Chain Issues Impacting Airline Operations

The shortage of new aircraft is also a major contributing factor to rising flight costs. In January 2024, certain Boeing 737-9 MAX jets were grounded due to safety concerns, leading to delays in aircraft production. The US Federal Aviation Authority’s decision to halt Boeing’s production ramp-up has caused further disruptions, while Airbus has also faced challenges due to a shortage of engines and other components. These issues have resulted in a limited number of available planes, meaning that airlines are struggling to meet the increasing demand for travel. This imbalance between supply and demand has further pushed up flight prices worldwide.

The Green Transition and Its Financial Impact

The global shift toward a more sustainable travel industry is another factor influencing flight prices. Beginning in 2027, airlines will need to adhere to the International Civil Aviation Organization’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). This will require airlines in 126 member states to offset their CO2 emissions above certain levels, which will introduce additional costs to their operations. Additionally, European fuel suppliers will be mandated to incorporate Sustainable Aviation Fuel (SAF) into their mixes, starting at 2% in 2025 and rising to 70% by 2050.

Although these green initiatives are important for sustainability, they will likely lead to higher ticket prices for passengers. However, experts suggest that while the green transition may cause some price increases, the primary driver of ticket prices will still be supply and demand dynamics.

Hotel Prices on the Rise

Hotel prices are also soaring, largely due to a combination of pent-up demand from post-pandemic travel, limited supply, and rising operational costs. In particular, the “revenge travel” phenomenon has contributed to skyrocketing demand for accommodations. Additionally, countries like Japan, where the yen has weakened, have seen an influx of tourists, driving up hotel prices.

In major cities such as New York, restrictions on short-term rentals have further reduced supply, forcing tourists to turn to traditional hotel options. The higher operating costs, driven by staff shortages, energy price hikes, and post-pandemic adjustments, have also made it necessary for hotel operators to raise room rates.

Although hotel prices are expected to continue rising in 2025, the situation may stabilize as more hotels open worldwide. Over 2,500 new hotels are expected to open by the end of 2024, with another 2,700 slated for 2025. These new properties will help increase the available supply, potentially reducing price pressures.

Tourist Taxes and Other Hidden Costs

Tourist taxes, which are becoming more common worldwide, are another factor that travelers need to consider. Thailand, for instance, plans to implement a new tourist tax from mid-2025. Similarly, Venice, Italy, introduced a day-trip tax last year, which will rise from €5 to €10 in 2025 for visitors who have not prepaid their fees.

The EU is also introducing a new travel authorization system, the European Travel Information and Authorization System (ETIAS), which will be launched in 2025. This system will charge a fee of €7 every three years for travelers entering the region, further adding to the cost of travel in Europe.

The Global Impact of Rising Costs on Travel

The rising cost of travel is reshaping the global tourism industry. With higher flight, hotel, and tourist tax costs, travelers will need to adjust their budgets accordingly. This trend is expected to influence travel behavior, with many opting for more affordable destinations or changing their travel habits to offset rising expenses.

Moreover, travelers may increasingly prioritize destinations with lower taxes or where the cost of living is more affordable. This shift could lead to a greater focus on emerging markets as tourists look for ways to maintain their travel plans within their budgets.

As the travel industry adapts to these changes, airlines, hotels, and destinations will need to find ways to balance sustainability, affordability, and profitability to continue attracting visitors in the coming years.