June 22, 2022

Amid Summer Travel Boom, US Hoteliers Prepare for Fall Demand Shifts

Hoteliers Anticipate Rise in Corporate Travel

As hoteliers enjoy the latest wave of exceptionally strong leisure demand this summer travel season, the question hotel companies are left to answer is: How long can this last?

Hoteliers said that's a difficult question to answer given how unpredictable things have been in the past few years, but the general expectation is for leisure demand to cool somewhat in the fall with overall demand evening out due to stronger group and corporate transient demand.

Rob Smith, executive vice president for full-service hotels and resorts at Aimbridge Hospitality, said it's hard to believe leisure demand will continue to grow at the same breakneck pace, but he also doesn't expect a crash.

"There has to be a bubble," he said. "Leisure transient can't be at these levels forever. But our market mix will change. I don't think things will go back to normal from pre-pandemic. Things changed during the pandemic, but business travel will return — at least in segments where there is competition. If I need to get out to sell my wares, I can't do that via Zoom. That's all coming back."

John Kattato, senior vice president of operations at Essex Hotel Management, agreed that through the end of this year into early next year, hotel demand patterns are likely to normalize.

"Eventually it will even out," he said. "You start to see that as we get to the end of 2022 and into 2023. Part of that is while there is pent-up demand, there were also projects put on hold, and rooms taken out of service with hotels closed or closing off part of their inventory."

Kattato expects a wave of new hotel supply to come online, which could temper things somewhat. Because of that, he believes hoteliers should be making the most of the moment.

"Our direction with our properties and revenue managers is don’t be shy and don’t be afraid to be the last hotel to fill in your market," he said. "While revenues in most cases are at or surpassed 2019, operating expenses are up. In some cases, labor costs are up 60%. We haven’t gotten back to [earnings or net operating income] numbers equal to 2019, so we're trying to offset that the best we can."

Gilbert Arredondo, divisional vice president of revenue strategy at Remington Hotels, said that it's not a given that "pent-up demand" will be a thing of the past come fall because both the recovery and the scaling back of pandemic-related restrictions have not progressed evenly across the U.S.

"I live in Texas, and we haven't had COVID anything for over a year, but some counties in California just put mask mandates back in place," he said. "I think because it's so segmented, there's still pent-up demand."

Arredondo agreed that the positive outlook for growth in business travel and group bookings will help offset as that pent-up demand cools. And there's a new segment of travelers who don't necessarily travel for work but are willing to travel and work.

"So many jobs went remote or flexible — almost everybody is doing that now," he said. "I think people have the freedom to travel more, and COVID helped adjust the mindset of American consumers. They're saying they're not going to be chained to a desk anymore."

Bryan DeCort, chief operating officer for Hotel Equities, said as the wave of pent-up leisure demand begins to wane, so will some of the pricing power hoteliers have. He said hotels clearly benefit from the savings some consumers have amassed during the pandemic, but it's also fueled increasing demands in terms of guest experience.

"They're saying, 'I don't mind paying a premium, but I want breakfast and my room cleaned and serviced daily, and in come cases, I want turn down service in the evening.' They want all the amenities of the hotel to be fully functional," he said.

DeCourt said hotels that can't meet those service expectations are in for a "day of reckoning" as demand cools in the fall. Overall though, early signs for Hotel Equities' portfolio are that the fall will come in reasonably strong on the back of strong group demand, particularly in October.

Erica Lipscomb, senior vice president of commercial strategy for Crescent Hotels & Resorts, expects a similar trajectory for the fall, predicting a short-term drop-off following Labor Day followed by a strong October fueled by group demand.

"That's the most promising thing to me is that group demand," she said. "There are some large numbers of meeting planners saying 'We have to get back to business.'"

A broader demand mix could be a positive sign for hoteliers that more typical seasonal patterns are re-emerging.

"We're back to normal group patterns and business review conversations like 'Make sure you don’t leave Sunday and Thursdays open,'" Lipscomb said.

Arredondo agreed that this could be the year that hotel business balances out.

"Conventions are back," he said. "The fall convention season in Las Vegas, Florida, D.C., and Austin — those major markets will be back."

Kattato described it as an "extremely strong" summer followed by a "more traditional fall." He said one of the most encouraging things has been how quickly rates have recovered, especially compared to the Great Recession.

"At that point [rate recovery] took five years," he said. "Now, we're already seeing rates surpass 2019."

The biggest clouds on the horizon, though, remain the uncertainty of macroeconomic issues, like persistently high inflation and the threat of a recession.

Steve Contos, executive vice president of Davidson Hotels & Resorts, said that just underlines the uncertainty hoteliers face.

"Some experts on the economy say we're facing a recession, and if you listen to others, they'll say we're at the bottom and will have a great, robust next six months," he said. "We're not sure exactly where business is going to go, so we really have to be on top of things."

DeCort agreed that hoteliers should keep a close eye on the world around them — while still focusing on what they can do better with their businesses today.

"I don't know if we lose a lot of sleep over [macroeconomic issues], but I like to think we take a proactive approach in trying to understand what's happening around us in the macro environment so we're able to respond quickly."

Copyright 2022 CoStar Group. All rights reserved. From https://www.costar.com. By Sean McCracken, Hotel News Now.

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