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February 01, 2017
The Hotel Industry Thinks 2017 Could Be the Year Corporate Travel Bounces Back
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The uncertainty of a U.S. Presidential election, coupled with mega mergers, Brexit, Zika, and numerous geopolitical events left many corporations, especially those in the U.S., with tightened corporate travel budgets in 2016. And comments from hotel and travel industry executives in 2016 demonstrated that. Just before the U.S. election results arrived, executivesÕ responses were muted, and cautious. Arne Sorenson, Marriott president and CEO, said, ÒCorporate customers are clearly cautious É For transient business, we expect current weak corporate demand to persist, although comparisons should get easier.Ó Hyatt president and CEO, Mark Hoplamazian, said, ÒÉ WeÕve got clear data that says that short-term corporate bookings are weak or weakening.Ó Fast forward to January 2017, however, and many of Sorenson and HoplamazianÕs peers seem to have a much rosier outlook than before. And thereÕs a chance, they say, that this could be the year corporate travel bounces back. The reasons for their optimism have to do with the fact that the stock market is at an all-time record high and the new U.S. President, a fellow hotelier, is more committed to lessening regulations on corporations, slashing their tax rates, and building up a more robust transportation infrastructure. At the annual Americas Lodging Investment Summit conference in January, Skift spoke to a number of hotel executives and industry analysts for their thoughts on corporate travel in 2017. HereÕs what they had to say: CHRISTOPHER NASSETTA, PRESIDENT AND CEO, HILTON: POSITIVITY PREVAILS ÒAs we come into this year, my reason for optimism is not, and I think I said this, not trying to be a Pollyanna, I do think that sentiment, particularly in the U.S., in corporate America is more positive. That can certainly move from here up or down, depending on things that happen. But from my point of view, I think itÕs hard to debate that, post-election, the psychology has changed in a more positive way.Ó ÒCertainly, decisions could be made that reverse the momentum. But at the moment it feels as if thereÕs a bit of positive momentum. The psychology has improved. That psychology, I think, will ultimately drive more capital spending, more investments, positive investment decisions, which drives more employment growth, which drives more demand growth for hotel rooms. That means that the corporate business, which is essentially business travel, which is 75 percent of our business, which was weakening dramatically throughout last year, likely should pick up a bit.Ó ÒI think leisure travel has remained reasonably strong. Probably it seems like it will continue to. Our group business was reasonably good. It feels like itÕs maintaining its strength. So you take decent group business, relatively strong leisure, and some uptick in the corporate business and I think it means the business is better. How much better, IÕm not smart enough to know at the moment. I think time will tell.Ó ÒBut thatÕs the reason for my optimism. I think itÕs based on reasonably rational thinking. You can think of a lot of other things that can happen in terms of policy that could take it the other way. But right now it looks like there is going to be a real effort on regulatory reform. There is going to be a real effort on tax reform. There is like a real effort on some form of infrastructure spend. Any of those things, even if a fraction of it gets done in each of those categories thatÕs being talked about, I think, is ultimately positive for sentiment. ItÕs positive for the economy. ItÕs positive for sentiment. It continues to improve the broader trends of it.Ó AMANDA HITE, PRESIDENT & CEO, STR: DONÕT FORGET ABOUT INBOUND TRAVEL ÒWe obviously saw a bump in the stock market after Trump was elected. We know that corporations have had a lot of money sitting that they havenÕt invested, that theyÕve been just waiting to see what happens leading up to the election. There was so much uncertainty at the end of 2016. I think having the election and knowing who the president is going to be gives a level of certainty to corporations that they feel better about.Ó ÒObviously, with TrumpÕs policies being to cut taxes for corporations, thatÕs positive. The stock market picked up. I think those are signals that corporations can feel good about their corporate travel budgets. However, thereÕs not 100-percent certainty of whatÕs going to happen, because there are still some areas where it could go the other way É If thereÕs any trade war, a shutdown of borders, any talk of that, that also can hurt our industry.Ó ÒIn terms of looking at corporate travel, I think corporations have money. TheyÕre going to start spending. TheyÕre going to feel more comfortable getting back out, putting investments out there. We do expect that to be a bump in Õ17.Ó ÒWe think GDP growth is going to increase. I think the forecast for the GDP growth was 2.3 percent in our model for industry forecast. We do think that thereÕs a lot of positive opportunities for growth in Õ17.Ó ÒI think ensuring that we donÕt have any shutdown of borders or the negative view of people coming here, thatÕs going to be positive. For the industry, we really need the corporate travel to come back. The strong dollar is impactful. If we canÕt bring international travelers into the U.S. because of the strong dollar [that could be a problem]. We saw that in Õ16 with Brazil. We saw a drop-off in Brazilian travelers.Ó ÒAfter the Brexit vote, weÕve looked at UK travelers into the U.S., and you have markets like Orlando and Las Vegas that see huge numbers of UK travelers coming in. If itÕs more and more expensive for those travelers to come, they might not. ThatÕs an expectation we have in 2017, that we could see less of those UK visitors to the U.S. We really need U.S. companies picking up U.S. travel.Ó DAVID KONG, PRESIDENT AND CEO, BEST WESTERN: NOT ENTIRELY CONVINCED Kong, unlike some his peers, echoed a more cautious and skeptical tone not unlike Marriott CEO Arne Sorenson. ÒItÕs hard to say. I think if you asked me that question a year ago, I would have said that I think weÕre near the end of a cycle. But, you know, the election surprised everyone, and thereÕs some who find enthusiasm. You look at the stock market, and itÕs near an all-time high, so I think that bodes well Ñ that we could have a few more years in this cycle. But we have to wait and see. ItÕs really too early to tell.Ó ELIE MAALOUF, CEO, THE AMERICAS, INTERCONTINENTAL HOTELS GROUP: TAKING THE LONG VIEW ÒI think, since [2008/2009], corporate travel has been coming back. It went way down back then, some years more than others. There are multiple factors for that in any given year. We donÕt focus just on one year. WeÕre broad enough and we have the scale enough to have the ability to be resilient across many different segments, but also to be able to take a long-term view across all these segments and not just change our tactics and strategies within a given quarter.Ó ÒCorporate travel depends on the health of corporate business and corporate results. Until the fourth quarter of last year, I think we had five or six quarters in a row where S&P profits declined. The growth didnÕt decline, but they actually did decline. If the industry is saying that, therefore, corporate spending declined in hotels, it would not be illogical. There are not that many corporations that increase travel spending when their profits decline. At the same time, I think we saw a trend in the opposite direction reach into fourth quarter and perhaps into this first quarter. We think that these things follow logical trends associated with corporate results.Ó ÒIn general, U.S. corporations continue to grow, continue to develop. ThereÕs an outlook that they might be doing more corporate investment, fixed investment, capital investment that I think would be healthy for travel, that would be healthy for infrastructure, that would be healthy for the long-term trends of productivity in this country which can lift GDP. If we look at the trends, we think that they were stabilizing in a certain place towards last year, and weÕll look to see how they develop this year.Ó PAT PACIOUS, COO, CHOICE HOTELS: WEÕRE MORE LEISURE THAN BUSINESS, BUT BUSINESS SEEMS POSITIVE ÒWeÕre generally very optimistic about business travel. For us as a company, weÕre 2/3 leisure. Leisure has been very strong and we expect it to continue to be strong. The longtime demographic trends in the country are moving in our favor. I forget what the number is, but these Boomers retiring every day represents a significant number and they have a lot of discretionary spend and theyÕre spending it on travel. When theyÕre not traveling on their corporate card anymore and theyÕre travelling on their own dime, theyÕre more likely to stay in one of our hotels. On leisure, we feel like that momentum is going to continue, but I do think what weÕre seeing on the infrastructure spend, corporate tax reform, a lot of these things we expect will increase GDP. If you follow GDP and RevPAR over the years, thereÕs usually a six-month lag. I think we expect business travel to really come back in Õ17.Ó SCOTT D. BERMAN, PRINCIPAL AND U.S. INDUSTRY LEADER, HOSPITALITY & LEISURE, PWC: LETÕS KEEP AN EYE ON THIS ÒI think the segment to watch will be corporate behavior. WeÕre already seeing better numbers, particularly in New York. The banks, the financial service industry, have really been playing defense for a while. They havenÕt been spending money. ThatÕs not good for the hotel industry.Ó ÒThe initial indications are yes, [corporate travel will bounce back.]. LetÕs watch New York. I hate to keep saying that, but if you took New York, Miami, and Houston out of last yearÕs numbers, and I think others have been saying this too, it was really actually a really good year. HoustonÕs energy, Miami was Zika, and everything that came with that, and New York has been in a malaise because of the financial services industry and, by the way, supply increases, which is an Achilles heel to this industry. When you see 4 to 5 percent supply increase, thatÕs when analysts like me throw up the red flag. IÕve been doing this long enough to understand how to calibrate.Ó ÒThe answer to your question is yes. Early indications are corporate business for Õ17 will be better than Õ16. ThereÕs two sides to corporate: thereÕs transient, itÕs the road warrior thatÕs going out doing his or her job, and then thereÕs group business. Group is so important to the overall health of this sector. Both, not only from a convention, but from an industry point of view. How much are groups spending at the hotel? ItÕs how many rooms. You want to look for that banquet and catering business, too. After the recession in Õ08, Õ09, I was hired by major hotel organizations to answer the question, ÔIs group every going to come back?Õ It has, but in certain markets. You really do have to look at the U.S. market by market. Each one has a different DNA and a different story.Ó JOHN HARDY, PRESIDENT AND CEO, THE JOHN HARDY GROUP, A HOSPITALITY DEVELOPMENT GROUP: UNDECIDED BUT OPTIMISTIC ÒWho knows? É Nobody has any idea what Trump is going to do. EverybodyÕs hoping he doesnÕt do anything really horrible, but the fact that he is pro-business and heÕs talking about lowering taxes and reducing regulation makes everybody feel better about business. You would think it would make the playing field a little bit easier.Ó ÒThe last eight years, youÕve almost felt like you were the enemy if you were in business and trying to be successful. There was something negative about that. That negative psychology, whether it was intended or not, for the past eight years Ñ and IÕm not promoting one side or the other Ñ I think that negative feeling has been eliminated, and itÕs been replaced by a more positive outlook for business. ThatÕs a big factor. The economy has continued to improve, although not radically, but it has continued to improve.Ó LANCE MICELI, CMO, G6 HOSPITALITY: CORPORATE TRAVEL IS PICKING UP ÒI believe the outlook for corporate travel will remain positive. Last year, groups business, convention groups, big business like that, did quite well. I think corporate travel began to get some momentum. I think it paused slightly around the election simply because the entire country was waiting to see what might happen.Ó ÒI think 2017 stands to be a year of momentum. I think that people will be busy. I hope theyÕre busier than they have been in years past. Depending on which way our policy or prospectus may go could push the demand up or down slightly, but if you look at the other fundamentals outside of politics, the country is poised quite well for growth. I think people are going to need to get back out and visit with their customers, and find new accounts, and take care of people because, ultimately, nothing replaces an across-the-desk or across-the-table meeting, even with all the greatest of technologies. I think things will be positive.Ó ROBERT WARMAN, CEO, LANGHAM HOSPITALITY GROUP: A MORE GLOBAL PERSPECTIVE ÒBecause we are diverse and we donÕt have a bunch of hotels in the same market, when certain markets fluctuate a little bit, we donÕt get nearly as impacted either because we are more spread out. We donÕt have a concentration in just one place, and so weÕve been positive with seeing increased corporate travel. We found particularly in Asia and mainland China all of our hotels had significant growth year over year. WeÕve seen a positive impact of that.Ó Copyright 2017 Skift. All rights reserved. From http://www.skift.com. By Deanna Ting, Skift.
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