Small and Medium-sized Enterprises (SMEs) are the lifeblood of Europe’s travel and tourism sector – their competitiveness matters now more than ever 

How big is €1.73 trillion? It’s nearly the size of Spain’s economy, larger than the Netherlands’, and not far behind Italy. But this isn’t a national figure – it’s the economic contribution of Europe’s travel and tourism sector in 2024. Making up 10 per cent of the EU’s total GDP, it remains an underappreciated powerhouse, defying economic headwinds.

This vital industry is made up of literally millions of small and medium enterprises (SMEs and MSMEs). Every day, they innovate and inspire, delivering prosperity to the local communities and creating unforgettable experiences for visitors. Together, they make Europe not just a destination, but a living, breathing cultural magnet that continues to captivate the world.

Yet, in an increasingly competitive and globalised environment, SMEs face mounting challenges – from rising costs and regulatory burdens to the growing market power of chain hotels.

For the travel sector to meet ambitious forecasts of €3 trillion by 2034, European decision-makers must first recognise the critical role of small businesses and prioritise policies that empower their growth and resilience. 

Below we delve deeper into the key factors that will define success for hospitality SMEs over the coming years. 

The ‘revenge travel’ aftermath

The summer of 2023 marked the peak of ‘revenge travel’ with global tourism spending outpacing GDP growth seven to one. This recovery, fed by pent-up demand and a renewed appreciation for travel, has helped Europe’s tourism industry bounce back from the pandemic.

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According to the latest European Accommodation Barometer, optimism persists. While in 2022, 17 per cent of European hoteliers expressed negative expectations for their short-term futures, by 2024 this figure dropped to just 4 per cent, with 65 per cent of accommodations witnessing strong business development.

In the first half of 2024, the European Union recorded 1.2 billion tourism nights – an increase of 26.6 million compared to the same period in 2023. Spain also achieved a record-breaking 94 million international tourist arrivals in 2024, surpassing pre-pandemic levels.

If European travel is to maintain its trajectory, policymakers and stakeholders need to reflect on recent learnings and build back a more balanced tourism ecosystem, through active support for SMEs. 

Statista: Small but Mighty: European SMEs Lead in Jobs and Value Added

SMEs under pressure in a globalised market

From family-run boutique hotels in Provence to rural eco-lodges in the Carpathians, Europe’s SMEs not only provide rewarding travel experiences and unique cultural value, they also power the economy through job creation and regional development.

“Part of Europe’s success lies in its diversity – diversity of heritage, culture, food, language – and there is a broad mix of businesses to match,” says Peter Lochbihler, Global Head of Public Affairs at Booking.com. “Whereas 70 per cent of accommodations in the US are chains, in Europe it’s almost the opposite.”

However, Lochbihler also points out: “We are seeing that this balance is slowly moving towards ‘chainification’”. The European Accommodation Barometer research revealed, year after year, that chain hotels in Europe have an economic advantage, consistently demonstrating more optimistic sentiment on a wide range of performance indicators. “We see it up and down our high streets, in retail, fashion, gastronomy: big global brands are gaining ground. The hotel industry is no exception. Larger chains have wind in their sails, thanks to name recognition, global reach, and good old economies of scale.”

In this highly competitive global market, independent accommodations and smaller enterprises are struggling to keep up. Beyond access to and lower cost of capital plus universal brand recognition, chains have significant advantages over SMEs, be it through proprietary technology or global customer loyalty programmes. 

Statista: Top 6 Challenges Small Businesses Face in the EU

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How can policymakers build back better?

Europe’s hospitality sector thrives on diversity, but sustaining it requires smart policy choices in Brussels, European capitals and city halls at every destination. By prioritising SMEs, governments can ensure that growth benefits all – keeping local character alive, supporting innovation and assuring equitability of tourism’s economic impact.

“EU policies lack immediate incentives for SMEs to digitise and switch to more sustainable practices,” Lochbihler explains. “If the European Commission is to meet its goals for the twin transition, it will mean increasing access to finance and providing guarantees to allow small businesses to upgrade their tech tools and scale sustainability ambitions with less financial risk.”

Despite mounting calls for a more favourable business climate following the publications of the Draghi and Letta reports, red tape continues to stifle SMEs’ ability to thrive. 

Complex compliance frameworks, such as the Package Travel Directive, often place a disproportionate burden on SMEs, with growing reporting obligations and liability risks. Optimising these regulations would give small businesses more room to innovate and compete – without weakening consumer protections. 

Cross-sector collaboration key for SME survival

The long-term health of hospitality SMEs can also be built through collaboration across sectors and regions, in infrastructure development, upskilling workers and distributing tourism more evenly across rural and underserved regions. 

While broad EU initiatives like the European Skills Agenda and the Pact for Skills focus on equipping workers with technical, managerial and sustainability-focused expertise, more can be done to expand educational programmes that address tourism’s specific demands and ensure the workforce is – to borrow Ursula von der Leyen’s phrase – fit for the digital age. 

Statista: Skills shortages in the EU

“Customer acquisition is one of the biggest challenges for smaller properties —and that’s where we come in. At Booking.com, we help businesses of all sizes attract guests, manage payments, boost occupancy, you name it. Small and independent accommodations may not have access to the proprietary digital suites, exclusive staff training programmes, or marketing budgets of global hotel chains, but they excel in resilience, delivering unforgettable guest experiences, and growing through partnerships with technology providers and digital platforms,” Lochbihler concludes. 

The role of European travel tech companies like Booking.com in levelling the playing field for SMEs is not to be understated. By democratising access to advanced tools, such as AI-driven insights and sustainable solutions, platforms can enhance operational efficiency, multilingual customer service and marketing reach, empowering even the smallest operators to thrive in an increasingly competitive environment. 

Keeping Europe the world’s top destination starts now

Despite headwinds, Europe’s travel industry remains a force for growth, a source of competitiveness and a creator of hyper-local economic value.  

However, sustaining this strength requires bold policies that support smaller players, investment in skills and technology, and collaboration between government and business. In this way, hospitality SMEs can continue to delight visitors, delivering the rich, authentic experiences that make Europe the world’s favorite travel destination. Let us not forget to celebrate and cherish their success.