Industry Will Weather Shorter-Term Headwinds, Execs Say
The global hotel industry faces several obstacles, particularly related to higher costs, but executives at the 2023 NYU International Hospitality Industry Investment Conference said they expect hotels to pull through. After all, they've done it before.
Traveler behavior changes, as it has over the past several years, but the industry has been changing to keep pace with these new demand patterns. All through the pandemic, people traveled.
Executives said the desire people have to travel will overcome even the macroeconomic issues at play — inflation, the rising cost of debt to combat inflation, geopolitical problems and fears of a recession.
Quotes of the Day
ChatGPT "is definitely the death of the hotel concierge. I was in Italy and used it to plan my itinerary, and it did a damn good job."
— Sloan Dean, CEO of Remington Hospitality, on a CEO general session panel, on the opportunities AI presents to the hotel industry.
“Consumer spending declined for the first time in over two years. We’re seeing declines in discretionary spending across all categories. Despite that, consumers state their intent to splurge on travel and hospitality ahead of any other category, particularly durable goods like electronics, vehicles and home goods.”
— Alex Cosmas, partner at McKinsey & Company, on the lasting impact of prioritized spending on travel.
"If we don't manage ESG, governments will do it [for] us. We either self-regulate or the government will regulate."
— Larry Cuculic, BWH Hotels president and CEO, on environmental, social and governance efforts.
"We will probably have a negative [revenue per available room] week or month sometimes during this year, and people will inevitably overreact to that."
— Eric Resnick, CEO of KSL Capital Partners
The resilience of travel has been a popular subject for hoteliers, and proven, over the past couple of years. Leisure demand started its recovery faster than anyone expected during the first year of the pandemic, a sure sign that if people have the will and means, they're going to find some way to make a trip work.
"If you think about it, the consumer is really just now feeling the complete freedom to travel wherever they want, whenever they want," said Leeny Oberg, chief financial officer and executive vice president of development at Marriott International, during the IREFAC panel. "From that standpoint, I think you can see that should we have a recession, that might be a little different this time."
We're seeing leisure demand pull back a bit, but that's more demand levels returning to normal than any kind of drop that should cause concern. While a decline in demand of any kind means less business, hoteliers are taking some comfort from the fact that group and corporate demand are coming back. We can also expect more international inbound travel in the future, an eventual boost to all of those demand segments as well.
— Bryan Wroten, senior reporter
The lending environment is not going to go back to the way it used to be. That was a common theme from experts during the second day of the conference. The understanding seems to be that while things definitely have to get better, the most likely thing to happen is that private equity and other alternative lenders will fill the financing holes left behind by banks.
On the main stage, Christopher Jordan, managing director and head of specialty real estate finance for Wells Fargo Corporate & Investment Banking, said the regulatory environment in all likelihood will lead to a smaller amount of capital being available from banks for commercial real estate, especially as regional banks are slated to be much more under the microscope. Private equity groups are in the early stages of filling that gap.
We’ll have to see just how that comes together, but there’s a general sense of optimism that by the time we hit this conference in 2024, financing will be much easier to come by even if it’s coming from different places.
— Sean McCracken, news editor
The big word this week at the conference was "stabilization," primarily related to the leisure travel segment. Most speakers representing hotel brands and management companies expect the breakneck leisure demand of recent years to stabilize over the rest of 2023. But this is happening as group and business-transient travel continue to trend up — at least in some places.
My biggest takeaway from this conference when I think about the current state of the industry is that it's a tale of not just two but many cities, many segments, many business groups and many consumer groups. It's clear that the U.S. can't paint this period of time, both economically and from a hotel business perspective, with a broad brush. Recessions and downturns may hit some industries and not others, and that likely will happen in a rolling fashion. While some consumers have spent all their discretionary cash on vacations and are now settling down, other groups are just getting started.
These shifts are happening most obviously in international travel trends. Jeff Wagoner, CEO of Outrigger Hospitality Group, spoke on the CEO panel Tuesday morning about the shifts in feeder markets at his company's hotels and resorts in Hawaii and Thailand, in particular. Airlift and direct flights from U.S. mainland cities to Hawaii are way up, sustaining that market before Japanese travelers return in full force. Thailand's main feeder market now seems to be Russia, while China has not yet returned.
"We have to continue to keep our eyes wide open on all these demand sectors," he said. "We're still in flux from an international demand perspective, that will probably stabilize over the next year or so."
That "international factor" is the Great Unknown at this point that must shake out before the U.S. hotel industry can truly stabilize.
— Stephanie Ricca, editorial director
Copyright 2023 CoStar Group. All rights reserved. From https://www.costar.com.
By Sean McCracken, Stephanie Ricca and Bryan Wroten, Hotel News Now.