Rising Customer Acquisition Costs Challenge Travel Industry’s Profitability

Rising customer acquisition costs (CAC) are increasingly impacting the travel industry, necessitating a focus on customer retention strategies. A recent survey involving 270 respondents from various sectors, including hotels, airlines, dining, online travel agencies, and cruises, revealed that CAC increased by approximately 35% from 2022 to 2025, while customer lifetime value grew by only 4.5%. This article delves into the implications of these findings and explores strategies to address the challenges posed by rising acquisition costs.

Current Industry Challenges

The report, published by Adobe, Publicis Sapient, and Incisiv, highlights a significant economic imbalance within the travel industry. As acquisition costs surge, the growth in customer lifetime value remains minimal, creating an unsustainable business model. The report emphasizes that customers tend to defect after experiencing 2.4 negative interactions, underscoring the importance of enhancing customer experiences to improve retention.

Pablo Delgado, CEO of Mirai, notes that acquisition costs are often unsustainable when measured against the revenue from a first booking. He stresses the importance of considering customer lifetime value and implementing a solid retention strategy to drive repeat business, particularly through direct channels.

Regional Variations and Industry Perspectives

Hazel McGuire, Chief Marketing Officer of Intrepid Travel, highlights that the U.S. has been particularly affected, with some cost-per-click (CPC) rates increasing by over 90% year-on-year. However, Andy Headington, CEO of Adido, points out that the timeframe of the survey, which includes the COVID-19 pandemic period, may have contributed to the apparent increase in costs. He notes that while a 35% rise is significant, it reflects broader inflationary trends in the travel sector.

Key Drivers of Rising Costs

The survey identifies several key factors contributing to the rise in CAC, including poor personalization, fragmented data, and outdated targeting strategies. Only 9% of respondents reported having fully integrated paid and owned media strategies, and 77% admitted to unknowingly targeting their own loyalty program members through paid media. This highlights a need for better data management and prioritization to avoid wasting resources on existing customers.

Strategies for Mitigating Costs

To address these challenges, the report suggests that travel brands prioritize unified customer identification strategies to reduce acquisition costs and enhance personalization. Pablo Delgado emphasizes the importance of investing in technology and talent to effectively utilize data. He advocates for continuous review and adaptation of data systems and strategies to align with evolving market dynamics.

Andy Headington echoes this sentiment, stressing that data should be a priority across the business. He suggests integrating digital media, customer data, and booking data to generate better insights and reduce wastage. However, he acknowledges that achieving perfection is impossible due to the inherent unpredictability of customer behavior.

Marketing and Loyalty Strategies

In terms of marketing strategy, McGuire indicates that Intrepid Travel is focusing on balancing performance and brand marketing while expanding customer acquisition touchpoints. She highlights the decline of third-party cookies and the increasing importance of first-party data for targeting existing customers more effectively.

For improving customer loyalty, Delgado advises focusing on core hospitality principles, such as delivering excellent service and room quality. He argues that loyalty is not built on discounts but on meeting or exceeding customer expectations. Effective marketing should reinforce brand presence through consistent communication and differentiated experiences.

Additional Findings

The report also addresses the need to engage Gen Z travelers, who represent only 14% of industry loyalty program members. Strategies that connect with Gen Z’s preference for authenticity and social engagement are recommended. Additionally, the report highlights the potential of artificial intelligence (AI) to enhance personalization and drive long-term value.

Service failures are identified as opportunities to build stronger customer relationships when handled effectively. Firms that execute successful service recovery strategies see an average 63% increase in customer retention, demonstrating the potential benefits of well-managed service disruptions.

Conclusion

Overall, the survey findings suggest that prioritizing data integration, adopting AI, and tracking growth metrics can help travel brands reduce CAC over time. As the industry grapples with rising acquisition costs, focusing on customer retention and leveraging technology will be crucial for sustaining profitability.

Discover more at PhocusWire.