Addressing rising customer acquisition costs in travel

Rising customer acquisition costs (CAC) pose a threat to the travel industry, emphasizing the need for brands to prioritize their retention strategy.

According to a survey of approximately 270 respondents from the hotel (28%), airline (26%), dining (23%), online travel agency (19%) and cruise (4%) sectors, these costs were up approximately 35% from 2022 to 2025. At the same time, customer lifetime value was up just 4.5%.

The report, published by Adobe, Publicis Sapient and Incisiv, noted that the trend is “no longer subtle,” with customers defecting after 2.4 negative experiences.

“Travel and hospitality firms face a dramatic economic imbalance that threatens industry profitability. Customer acquisition costs have surged across all sectors while lifetime value growth remains minimal. This growing disparity between rising investments and stagnant returns creates an unsustainable business model that demands urgent attention,” the report reads.

“The numbers tell a troubling story: Acquisition costs have skyrocketed while customer value barely increases. Conversion rates remain persistently low, and most first-time customers never return for a second purchase.”

Leaders across the travel industry have observed similar trends.

“In our case, we measure acquisition costs as a percentage of the revenue from the first booking rather than in dollar value—and viewed this way, the investment is often unsustainable if considered only against that first stay,” said Pablo Delgado, CEO of Mirai.

According to Delgado, because of this, it’s important to also consider customer lifetime value.

“While costs are clearly increasing on the first booking, a solid retention strategy can reduce the effective cost significantly by driving repeat stays through the direct channel. Unfortunately, most hotels still lack this long-term view,” he said.

Hazel McGuire, chief marketing officer of Intrepid Travel, added that the U.S. has been “particularly badly impacted.”

“We’re about 35% on average across our three main sales regions, but actually in America, in the U.S. particularly, we’re up over 90% year-on-year on some of our CPCs,” McGuire said of the numbers at Intrepid Travel.

However, Andy Headington, CEO of Adido, wasn’t as convinced, mainly due to the survey’s timeframe.

“Yes, there has been an increase in cost per acquisition, but that’s partly due to the timeframe of the report (2022 was still in COVID for some places/countries and competition was less), and the general market has been through an inflationary time,” Headington said, adding that while 35% is high, cost per acquisition has “gone up across the board in travel broadly.”

Key drivers

The survey highlighted a few key reasons for the rise in CAC, namely “poor personalization, fragmented data and outdated targeting strategies.”

Of the respondents surveyed, only 9% said they had fully integrated paid and owned media strategies. Additionally, 77% said they unknowingly targeted their own loyalty program members through paid media, with an estimated 27% of digital customer acquisition budgets spent on targeting these customers.

“I think many travel brands waste budget targeting existing users due to poor data management and a lack of data prioritization. This is across all travel businesses both large and small where data isn’t seen as a priority and systems integrations which promise lots nearly always fail to deliver,” Headington said.

And as costs are spiking, over half of surveyed marketers (53%) at $1 billion+ companies said effective customer acquisition strategy should be a top priority to drive growth.

What can travel brands do?

According to the report, travel brands will need to prioritize “unified customer identification strategies to reduce acquisition costs, enhance personalization and transform service disruptions into loyalty opportunities.”

When it comes to fragmented data systems, Delgado said that technology is the “Achilles’ heel” for hotels, requiring these brands to invest in the systems and in the talent to use data effectively.

“Implementations should not be treated as one-time projects—data systems and strategies must be reviewed every 18-24 months as requirements and market dynamics evolve,” he said.

“This willingness to adapt and continuously improve is often lacking in hospitality, yet it is essential to avoid the disconnect between predicted and actual results. In short, technology and strategy must be managed as living processes, not static initiatives.”

Headington echoed this, stating that data “needs to be a priority across the business,” and like the report suggests, it needs to be shared across more teams to avoid targeting existing loyal customers.

“Digital media, customer data, booking data and website/app data should all be combined to generate better insights into customer patterns and reduce wastage where possible,” he said.

“However, optimizing for perfection is impossible—customers are inconsistent and have behaviors which are hard to understand, so there will always be some money lost, it is inevitable.”

For marketing strategy, McGuire said Intrepid is now focusing on an equal divide between performance and brand marketing, also expanding branch touchpoints for customer acquisition. She pointed to the decline of third-party cookies and the rising importance of first-party data to move existing customer “in a difference direction.”

For loyal customers, it may be less about discussing the “top-of-funnel brand” and more about targeting them using information they’ve already provided.

“Having that first-party data married into data matching, for example, that’s the other big thing for a business that works in lots of different markets and potentially has lots of different touchpoints for customers,” McGuire said.

“It’s about also pulling that data together and almost de-duping it and making sure that we’re combining customer records again so that we’ve got that clear, one vision of who our customer is, how they’ve interacted with us and working on that basis.”

But for overall loyalty improvement, Delgado said the focus should be on the core tenets of hospitality.

“Loyalty is not built on discounts or price—those may help with initial acquisition but do not sustain long-term relationships. It starts with delivering an excellent stay: service, room quality and value for money must meet or exceed expectations. Once guests leave satisfied, marketing can reinforce brand presence through consistent communication and differentiated experiences,” Delgado said.

“Unfortunately, many hotels lack clear identification of repeat guests, but segmenting audiences and emphasizing brand values rather than discounts is the best way to maximize acquisition spend and convert first-time guests into loyal customers.”

Additional findings

The wide-ranging report also addressed generation blindness as a threat to growth, highlighting the need for brands to “connect meaningfully” with Gen Z travelers, who represent just 14% of members across industry loyalty programs. The report suggests leaning into strategies that connect with Gen Z’s preference for authenticity, social engagement and frictionless experience, which may also involve flexible payment methods and the use of mobile apps.

Artificial intelligence (AI) was also addressed, with the report citing the new technology as a way to improve personalization and drive long-term value.

Service failures were highlighted as well as a way for brand “to build stronger customer relationships when handled effectively.”

“Firms that execute effective service recovery strategies (incorporating timely response, right resolution and empathy) see an average 63% uplift in customer retention compared to those with ineffective recovery. This ‘service recovery paradox’ demonstrates that well-handled service failures can actually create stronger emotional connections than uninterrupted experiences. However, many firms fail to capitalize on this opportunity,” the report reads.

Overall, the survey findings suggest that AI and tracking growth metrics to evaluate the success of different campaigns can also help reduce CAC over time.