Hotelier Sentiments Mixed Around Recovery of Business Travel

STR, Tourism Economics Upgrade Projections for Average Daily Rate

By Dana MillerRobert McCune and Terence Baker
Hotel News NowAugust 12, 2022 | 6:13 A.M.

NASHVILLE, Tennessee — The strength of leisure demand and the return of group demand has been top of mind for hotel executives and analysts during the first day of the Hotel Data Conference.

However, the demand discussion seems to come with varying degrees of optimism.

Hotel guests, especially leisure guests, continue to pay higher average daily rates in this inflationary environment. But staffing levels remain tight, and guests are demanding more as hotel teams struggle to ramp back up to accommodate group meetings and events.

Hotelier conversations also centered on whether inflated room rates would be sustainable or not.

Letizia Rossi-Espagnet, product analyst at STR, London, said during a data presentation that inflation and demand mix are both key contributors to today’s strong rate growth, especially in the luxury segment.

However, while ADR levels are expected to remain high, rate growth will moderate over time, she said.

STR and Tourism Economics also announced the revised U.S. hotel forecast, which adjusted occupancy expectations downward while projections for average daily rate were lifted.

Photo of the Day

Carter Wilson, senior vice president of consulting and analytics at STR, provides an overview of the U.S. hotel industry during the opening session of the 14th Annual Hotel Data Conference. STR is CoStar’s hospitality analytics firm. (Bryan Wroten)

Slides of the Day

STR and Tourism Economics adjusted occupancy downward but increased projections again for average daily rate in the revised U.S. hotel forecast. Revenue per available room is on course to achieve full recovery this year nominally but not until 2025 when adjusted for inflation.
The revised forecast from STR and Tourism Economics calls for revenue per available room in the U.S. this year to exceed pre-pandemic RevPAR on a nominal basis.

Quotes of the Day

“I love this chart because folks don’t realize how much of a gap there is between real revenue-per-available-room growth and nominal RevPAR.”
— Sourav Ghosh, executive vice president and chief financial officer, Host Hotels and Resorts, in response to the slide titled “Relative to 2019, Revenue Per Available Room Projected To Fully Recover (in Real Terms) in 2025.”

“We are in the convenience industry. Why can we not have an app that allows guests to tip housekeeping, who work long hours? Why can we not change hotel industry cancellation policy? It is not about collecting more dollars but instilling more discipline.”
— Mitch Patel, president and CEO, Vision Hospitality Group

Editors’ Takeaways

Perspectives on the recovery of business-transient hotel demand range from optimistic — CoStar Group’s Director of Hospitality Analytics Daryl Cronk said he expects full recovery by the end of 2023 — to downright gloomy in that some hoteliers I’ve spoken with at HDC this week believe there’s some percentage of business travel that will never come back.

One factor — whether it’s positive or negative remains to be seen — is that the definition of business travel and the distinction between business and leisure travelers is shifting.

Chase Oeser, regional sales manager at CoStar hospitality analytics firm STR, said during a presentation Thursday that while weekday/midweek hotel demand — traditionally representing business travel — remains depressed compared to 2019, at least some of the rebound in shoulder-day demand, for Sunday and Thursday nights, can be attributed to business or bleisure travel.

If business travelers are, in essence, vying for hotel rooms on Sundays and Thursdays with more leisure-oriented guests, that presents hotel revenue managers with a pricing conundrum. As long as hotels can continue to drive high rates from leisure travelers on weekends, or extended weekends, how likely are they to negotiate with business travelers or groups who want those rooms on the same nights?

If hotels are selling out rooms Thursday to Sunday at sustained higher rates, is it less important that those same rooms are more than half empty during the week?

Cronk’s optimism in the slow-but-sure recovery of business travel is partly based on confidence that business executives will again realize the value of in-person interaction with partners and clients. He also told me that as the economy grows, there will be more workers to travel, and even if the percentage of workers traveling remains lower than it was pre-pandemic, that could look like a full rebound in business travel.

It’s clear that business travel is still lagging in this recovery, and that it has changed. Whether that change is temporary or not, and how that reflects in hotel performance, is a burning question for the hotel industry.

— Robert McCune, senior managing editor

As the first day of the conference came to an end, the one thing that struck home was that while average daily rate has surpassed 2019 levels and RevPAR has joined it in many cases, what is swirling around the industry is uncertainty.

That is not uncertainty stemming from panic, as was the case even six or so months ago, but questions around who the new guest is, why they are traveling and how group and business travel is coming back and what shape will that take.

A wonderful piece of news came from Erika Alexander, chief global officer, global operations, at Marriott International, who said during the “Bourbon with the bosses” keynote panel that the three crises of the 21st Century — 9/11; the Great Recession and the COVID-19 pandemic — have proven beyond all measure that the hotel industry is sustainable, and a great career choice.

The tussle facing the industry, though, is how the new demand must be catered to, priced and satisfied. The leisure part might be easier resolved, but group travel and new and existing employees might be a sterner task to get the strategy right on.

There are signs group and corporate travel are returning.

At a panel on business travel, John Cook, Marriott’s senior director of data science and reporting, said the industry does “not have a great insight on what [business travel] will look like by the end of the year. For instance, what is the long-term impact of working from home? We do not know where the ceiling is. We are seeing different types of travel, but we do not know where the finish line is.”

On the same panel, Gaurav Sharma, executive vice president of revenue and distribution at EOS Hospitality, said the “[travel-buying] market does understand that it will have to pay more. Company rules on travel could be a bigger potential barrier than is traveler desire.”

The big picture might be settling down, but there is a lot of detail to wallow through and get right.
— Terence Baker, senior reporter

On a panel I moderated about the future of meetings and events, experts said while group demand is improving overall across the top 25 U.S. markets, larger urban markets like New York, San Francisco, Washington, D.C., and Boston continue to lag.

With that, I would say to take caution when we hear CEOs on company earnings calls say that group demand is roaring back. It might be in places like Miami, Tampa and Houston — but not in every market. It’s clear that it’s not a one-size-fits-all recovery. Many hotels are also struggling to gain revenues from catering and banquets, according to 2022 STR data indexed to 2019.

Meeting planners — both inside and outside of the hotel industry — are stressing the importance of patience and collaboration as teams navigate a short-staffed environment and work to deliver value-add offerings and experiences.

However, this doesn’t mean hoteliers aren’t working around the clock to strategize ways to lighten the labor load through automation, cross-training, gig work and the leverage of data to make better decisions.
— Dana Miller, senior reporter

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(Posted with permission from CoStar)