The K-Shaped Economy’s Impact on Luxury Hotels
Luxury Hotels and the K-Shaped Economy: A Tale of Two Markets
Luxury hotels are going through some big changes lately. As super-rich guests grab the best suites and villas, basic luxury rooms are often left empty. This shows a growing divide in the luxury hotel market.
Jack Ezon, who runs a luxury travel advisory called Embark Beyond, noted, “Around the end of 2024, we saw deluxe rooms becoming much harder to sell than suites.” This trend is part of a larger story about how different groups of travelers are experiencing luxury.
The Changing Landscape of Luxury Travel
The shift in luxury travel is clear. Ezon described it as a “tale of two markets.” On one hand, we have the ultrawealthy travelers who have no problem paying high prices for the best experiences. On the other hand, there are the “poor rich” who are feeling the pinch from rising costs. Inflation is making it tougher for many people to afford luxury travel.
In many cases, suites are selling out quickly at higher prices, while entry-level deluxe rooms remain empty. This reflects a broader trend in the economy. A report from Moody’s in 2025 highlighted that the richest 10% of earners are responsible for nearly half of all consumer spending in the U.S.
Yearly Performance in Luxury Hotels
Looking at hotel performance data from JLL Research and STR/CoStar, luxury hotels saw a 2.9% gain in revenue per available room (RevPAR) year-over-year through November. In contrast, other hotel segments struggled:
- Upper upscale: 0.4% growth
- Upscale: -1.5% drop
- Upper midscale: -1.9% drop
- Midscale: -2.6% drop
- Economy: -4.1% drop
This shows that the luxury market is doing better than its lower tiers, but even within luxury, a split is starting to appear.
Demographic Shifts in Luxury Travel
Carine Bonnejean, who is in charge of hotels at Christie & Co, noted that the luxury market is becoming more segmented. There are more millionaires than ever, which means hotels are catering to different types of wealthy guests. This includes younger, less wealthy travelers looking for luxurious experiences, as well as high-net-worth individuals seeking personalized services.
Adapting to Demand for Luxury Accommodations
Hotels are changing how they operate to meet this new demand. Jon Makhmaltchi, CEO of a luxury travel marketing company, mentioned that hotels are remodeling. They are making smaller rooms larger and adding more villa options.
For example, some hotels are converting regular rooms into suites. The AlmaLusa Baixa/Chiado in Lisbon has changed some of its rooms into a two-bedroom suite, while the Saint James Paris has expanded by purchasing nearby luxury apartments.
Makhmaltchi pointed out that while regular rooms may sit empty, there’s high demand for luxury inventory. Some hotels even offer travel advisors higher commissions for booking entry-level rooms to boost sales.
The Economic Strategies of Luxury Hotels
Many luxury hotels are sticking to a strategy of high prices with lower occupancy. Ezon noted, “They’d rather have their hotel at 65% occupancy at a higher rate than 100% with lower rates.” This helps hotels manage costs, especially since operating expenses have risen.
Dan Peek from JLL’s Hotels & Hospitality Group agreed, stating that luxury hotels are focusing on pricing after the pandemic. They are testing how much they can charge, but this may risk pricing out some travelers.
Concerns About Sustainability in Luxury Pricing
While the luxury market seems strong now, Ezon expressed concerns about its sustainability. He mentioned that in his long career, he has never seen rates rise so sharply in just a few years. If hotels alienate entry-level luxury consumers, they might lose future customers.
He cautioned that the current success of luxury hotels relies heavily on the economy’s strength. “As long as the stock market is strong, the luxury sector will do fine,” he said. “But if things change, even wealthy people will adjust how they spend.”
A Broader Perspective on Luxury Travel Trends
Not everyone agrees that there is a clear divide in the luxury market. Henley Vazquez, co-founder of Fora, suggested that the situation is more complex. Affluent travelers are often mixing and matching their experiences. They might stay at lifestyle hotels in cities and splurge on luxury resorts for special occasions.
Vazquez believes that luxury travel should cater to a wide range of travelers, not just the wealthiest. Travel advisors play a crucial role in keeping luxury travel accessible and exciting for everyone.
“Luxury travel is healthiest when it serves a spectrum of travelers,” Vazquez said. “Advisors help maintain that balance.”