ATLANTA — There’s been no shortage of obstacles for executives in the hotel industry over the past few years. The effects of the COVID-19 pandemic, rising interest rates and inflation are still felt today. Now, there’s a potential banking crisis. Yet, optimism reigns supreme.
Hotel executives speaking during the “View From the Top” panel at the 2023 Hunter Hotel Investment Conference discussed travel demand and development concerns facing the industry.
Elie Maalouf, CEO of the Americas for InterContinental Hotels Group, said he’s “long-term optimistic” in the trends of the industry and that while that optimism has faced some interruptions, it’s never been broken.
“The pandemic, supply chain, inflation, higher interest rates — [it] just hasn’t broken the will of people to travel, hasn’t broken the will of this industry. Demand is near record, rates are at a record, global travel is actually just resuming in most of the world,” he said.
Larry Cuculic, president and CEO of BWH Hotel Group, listed five things to watch out for moving forward: inflation, interest rates, bank instability, geopolitical actions and unemployment.
“New term: cautiously bullish. Everybody usually says cautiously optimistic, I’m going cautiously bullish,” he said about the future.
Travel Demand
In addition to the success of limited-service hotels, there’s “no resistance” at the upper end of the hotel chain scale, even with inflation, Maalouf said.
“People are traveling with the desire or the hunger or the passion that we haven’t seen in a long time. No rate ceiling; they want their experience and they’re willing to pay for it,” he said. “As F. Scott Fitzgerald said, the rich are different. They’ll be rich and want to spend no matter what’s happening in the economy, so that’s what we’re seeing on both ends.”
Maalouf also dismissed concerns that high inflation and interest rates could perturb travel demand from lower-income travelers. He said he thinks that with hotel rates holding firm, wages increasing and inflation potentially decreasing in the near future, there’s a runway for increased demand from this segment.
“There’s a bit of a tailwind from flattening inflation and rising incomes,” he said.
John Murray, president and CEO of Sonesta Hotels & Resorts, said his company has had challenges driving demand with its Sonesta Select brand, an upscale, select-service brand. The brand is catered toward business demand, which has been lagging since the onset of the pandemic.
“We need that business to come back so the business travelers come back in some of those locations,” he said.
Struggling West Coast markets such as San Francisco should benefit from international travel opening up, especially from Japan and China, Murray said.
“We feel like there’s a lot of room to run from what’s already been reasonably strong,” he said.
Infrastructure Bill
The $1 trillion infrastructure bill passed in the U.S. in 2021 is starting to reveal its benefits to the hotel industry this year.
Murray said the addition of jobs will help the economy in general, and the additional mid-tier income level workers fixing up roads, bridges and airports will boost demand for economy and midscale hotels. Also, the improvement of the roads will in theory lead to more drive-to hotel demand.
“If the highways are actually safe to travel and you can cross bridges safely, you’re more likely to jump in your car and go on a trip and visit some of these small markets around the country and see what a great country we have,” he said.
Cuculic said he is optimistic about the future of both midweek and weekend demand thanks to the infrastructure bill.
“When you think about Best Western, you think a lot about secondary and tertiary markets. Well, that’s where that infrastructure money is going to be spent. It’s kind of our sweet spot, quite honestly, and we’ve seen that grow and we hope to take full advantage of that with regard to midweek business,” Cuculic said.
Deals and Development
Amid a murky lending environment and significant banks collapsing in both the U.S. and internationally, Cuculic said having a development partner who is well-capitalized is key to getting deals done.
“Banks are going to be more closely scrutinized by their boards of directors with regard to their risk management,” he said. “We have to have faith in our regional banks, and I hope that our development team looks for those well-capitalized developers who can afford the [property-improvement plan] as they reposition a hotel or are putting a shovel in the ground.”
Julie Arrowsmith, president and interim CEO of G6 Hospitality, said having a solid model that developers are interested in has led to G6 Hospitality being ahead of pace in signings this year.
“Despite grumbling a little bit about rising interest rates, cost of debt, valuations, things like that, we’re still finding the deals,” she said. “Whether [franchisees] have good relationships with their banks, which they all have spoken of the importance of that, they’re able to pencil a deal and make it happen, or get capital elsewhere.”
Geoff Ballotti, president and CEO of Wyndham Hotels & Resorts, said now’s the time to begin development of projects that will open in 2024 and 2025.
“If they can find an asset to renovate, if they can find land to build, if they can get that financed, there’s never been a better time to do it than today,” he said.