March 08, 2023

Hotel Executives Expect Group Recovery Momentum To Carry Through 2023

Forward Bookings Show Strength in Demand Segment

The pace of the recovery of group business at hotels in 2022 and the amount of business on the books already for 2023 have hotel executives feeling more confident in the segment.

During their companies’ respective fourth-quarter and full-year 2022 earnings calls, these hotel brand and real estate investment trust executives shared their optimistic views on the strengthening of group demand for hotels.

Tony Capuano, President and CEO, Marriott International

“Our group business experienced the most meaningful improvement in 2022. In the U.S. and Canada, fourth-quarter group revenue increased 10% above the same quarter in 2019. Group revenue for 2023 is already pacing up 20% year over year, with room night and rate gains each quarter. Given strong lead generation and increased rate quotes, especially for in-the-year-for-the-year bookings, we expect group revenues this year to strengthen further. In 2022, around half of group room nights were booked in the year, compared to one-third in 2019.”

Chris Nassetta, President and CEO, Hilton

“Group [business] saw the biggest quarter-over-quarter improvement, with [revenue per available room] fully recovering to 2019 levels, driven by both occupancy and [average daily rate] gains. Company meetings boosted performance, [improved] more than 7 points versus the third quarter. … Comprising roughly 20% of our normalized mix, group is a segment with the greatest visibility. For 2023, group position is up 25% year-over-year and nearly back to 2019 levels. Even with robust forward bookings, the pipeline still remains strong with tentative bookings up more than 20% versus last year, helped by rising demand for company meetings as organizations bring their teams back together. Additionally, pricing for new bookings is up in the low double digits and lead volumes in January were at all-time highs.”

Mark Hoplamazian, President and CEO, Hyatt Hotels Corp.

“Group ... is plus 21% pace into the year. We feel really strongly about that. We had pickup last year that was in excess of booked rooms on a consistent basis. None of that is included in that base number. And that includes some real weakness later in the year that we are currently observing and seeing what we can do to ameliorate really in three key cities — Chicago, Atlanta and New Orleans — that just have really weak citywide patterns. But even with that we're showing really good pace. ... In the backdrop of all of this is a slowing in the second half with respect to relative macroeconomic conditions. ... We see credit spreads compressing, but rates remaining relatively higher for the time being. We have these dynamics, which are showing great signs of strength across our business lines, including business transient. But we feel like we'll have dramatically better visibility post- [first quarter] into [the second quarter].”

Pat Pacious, President and CEO, Choice Hotels International

“We are confident that the changes we are observing in leisure and business travel behavior that favor our brands will enable us to maximize growth opportunities well into the future. ... We've been highlighting consumer and industry trends that are driving a significant uptick in travel demand, and we've been making deliberate investments to reap the benefits from them. Specifically, we are capitalizing on long-term fundamentals, such as remote work, retirements, rising wages and the reshoring of American manufacturing. We see these trends as strong tailwinds for our company's long-term growth. Importantly, Choice’s resilient business model has historically delivered stable returns throughout both expanding and contracting economic cycles.

“Looking ahead, our optimism is further reinforced by the strengthening of our business transient and group segments. In 2022, we drove year-over-year increases in our business travel bookings. At the same time, the revenue generated from our business managed accounts more than doubled when compared to 2019. We expect business travel in our key industry verticals to increase, fueled by the onshoring of the U.S. supply chain and significant nationwide investments in infrastructure. Likewise, we anticipate additional tailwind from business travelers in sectors such as healthcare, technology and professional services, especially in the context of the Radisson Americas acquisition and the growth in our brand portfolio mix in segments and hotels that generate higher royalties per unit.”

Jim Risoleo, President and CEO, Host Hotels & Resorts

“This is a second consecutive quarter group revenue exceeded 2019, driven by 10% rate growth. In the fourth quarter, our hotels sold 954,000 group rooms, bringing our total group room nights sold for 2022 to 3.8 million, which represents approximately 84% of 2019 actual group room nights. Total group revenue for 2022 was down just 11% to 2019, and 6% rate growth and banquet contribution helped offset lower demand. For 2023, we currently have 2.9 million definite group room nights on the books, which represents 80% of full-year 2022 group room nights. This compares to 71% on the books at the same time last year. … In addition, group revenue pace is up approximately 17% as the same time last year. We are very encouraged by the large group base we have on the books, particularly given short-term booking trends. ...

“The short-term nature of the bookings is expected to continue. And as a result of the solid base that we have on the books, we’re encouraged with how group will likely perform this year.”

Thomas Baltimore Jr., President and CEO, Park Hotels & Resorts

“In terms of revenue segments, the rebound in group demand is a strong tailwind for our portfolio that we started to see in 2022 and expect to accelerate further in 2023. [Fourth-quarter] group revenues exceeded our forecast by 9% or approximately $9 million and showed a 12% incremental improvement over [the third quarter]. While we continue to see robust short-term group bookings, we are also encouraged to see the booking window elongate. In [the fourth quarter], $55 million of new business was booked for 2023 with gains primarily concentrated in San Francisco, New York and Orlando; and group revenue pace for 2023 increased by 300 basis points to 78% of pre-pandemic levels. Group revenue pace is up 28% compared to the same time last year, nearly doubling during the quarter and 15% at the end of [the third quarter]. Looking out to 2024, over 70,000 room nights were booked in December alone, led by San Francisco with over 15,000 room nights or over 21% of December's pickup for the year. Given these trends, Park remains very well-positioned to generate impressive year-over-year earnings growth, driven by ongoing strength in resort markets like Hawaii and Orlando. Pent-up business travel and stronger citywide calendars should support accelerating demand across our core urban markets.”

Jon Bortz, Chairman, President and CEO, Pebblebrook Hotel Trust

“Group pace is looking good for 2023. As of the beginning of February, [first-quarter] group room night pace was ahead of last year by 54% with ADR pacing 5.6% up [compared] to last year for a total group revenue improvement of 62.7%. Transient is also outpacing last year's first quarter by 16.2% in transient room nights, while rate is up by 1.4%. Total group and transient pace for [the first quarter] was ahead by 27.5% in room nights 2.1% in ADR and 30.2% in total revenues. While [the first quarter] is an easy comparison, we are currently pacing ahead year-over-year in group and transient in every quarter. This is partly a reflection of the ongoing recovery in demand and partly due to greater confidence on the partner group and transient customers booking further out than they did last year.

“For 2023, our group revenues are pacing ahead by 29.1% with rate up by 7.2%. Total room revenue on the books for 2023 was stronger by 21.3% with ADR ahead by 4.4%. Our urban ADRs are driving our rate advantage, while our resort rates are up marginally, driven by group rates that are substantially higher, while our transient rates are slightly down. We expect this will likely be the case for the year.”

Liz Perkins, Senior Vice President and Chief Financial Officer, Apple Hospitality REIT

“Looking at fourth-quarter, same-store segmentation, [best available rate] continued to be elevated to 2019 levels at 34%. Other discounts increased slightly to 29% in the quarter. Group was in line with the third quarter at 14%, still meaningfully higher than the fourth quarter of 2019, which illustrates the resiliency of small group demand. The negotiated segment remains between 17% and 18%, though the occupancy mix relative to 2019 improved from the third quarter, a positive indicator for business travel demand. And after three years without meaningful changes in corporate negotiated pricing, our hotels have just gone through successful 2023 rate negotiations with corporate and local business accounts. And we are optimistic that not only will production continue to improve, but that we’ll also see an improvement in negotiated rates.”

Jeff Donnelly, Executive Vice President and Chief Financial Officer, DiamondRock Hospitality Company

“Group demand was strong in the quarter. Fourth-quarter group revenues were nearly 103% at the same period in 2019, an acceleration from 91% of 2019 for full-year 2022. The group room rate was up nearly 13% in the quarter, an improvement from 10% growth in full-year 2022. Banquet revenues are at nearly 99% of 2019 levels. And the quality of our group is improving, and we expect total group spend to accelerate as we move through 2023 and ’24. When groups come, and they are coming, they are spending significantly outside the room. We have a terrific setup for 2023 and beyond. Citywide calendars in our core markets are already in line or ahead of total room production in 2022, according to a stronger base of business in the market. Boston; Phoenix; Washington, D.C.; Chicago; and San Diego are all well-positioned. Specific to our hotels, there are over 450,000 group room nights on the books at the start of this year, with an expected total production of nearly 740,000 room nights budgeted for 2023. This compares to approximately 540,000 room nights on the books at the start of 2019 and final total production of 782,000 room nights in 2019. Given the increased availability in our calendar and a strong citywide calendar, we expect to see outsized growth in short-term, in-the-year-for-the-year group sales, just as we saw throughout 2022.

“We did about 7% incremental group bookings in the fourth quarter versus the same quarter in 2019 at rates that are over 10% higher, so we continue to see the group booking trends accelerate throughout the portfolio. Given that shorter booking window and given our larger space availability throughout the portfolio, we're pretty excited about group opportunity as the year progresses.”

Mark Brugger, President and CEO, DiamondRock Hospitality Company

“The resorts are really their own micro businesses, and it's going to be different at different kinds of resorts. In Fort Lauderdale, for instance, we're grouping up to replace some of that leisure. So the way we're going to get back to those kind of max [occupancy] hotels like Fort Lauderdale, which has a great group meeting platform, is that we're going to supplement in more and more group than we had last year and that's going to allow us to close that gap. Some other hotels, if you have a 100-room hotel that has no group it's going to be harder to recover that and we're gonna have to play with the rate strategy there a little bit to figure out where the maximum profit fix is on revenues. The overall goal is to continue to maximize profits. We'll close some of the occupancy gap through adding group throughout the portfolio, but it might not close entirely in 2023.”

Copyright 2023 CoStar Group. All rights reserved. From By Bryan Wroten, Hotel News Now.

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