The Freitag family spent spring break in Costa Rica, and we had fun, especially playing in the natural hot springs. After a weekend at home, I immediately turned around and headed to Atlanta to participate in the 35th Hunter Hotel Investment Conference. And the sentiment I encountered there reminded me a little of those hot springs: Things are starting to bubble up.
Congratulations to the Hunter team on a job very well done, and especially to Bob Hunter, who founded this great industry get-together all those years ago. The conversations on the main stage were wide-ranging; it was very impressive that the lineup included the leaders of the largest airline, Delta Air Lines, and the largest hotel company, Marriott International.
Ed Bastian, CEO for Delta Air Lines, gave a very upbeat outlook for his company and air travel overall. When asked if he saw any softening, he responded that there was always a little bit of “choppiness,” but that business travel demand was doing well, international travel demand was doing extremely well, and the premium economy product was also doing very well. He was less enthusiastic about the fate of discount carriers.
This mirrors, in a way, the sentiment of Isaac Collazo, vice president for analytics with STR, a CoStar Group company, and my own presentation.
On the high end, the forecast for luxury and upper-upscale chain scale revenue per available room is around 5% for this year, but RevPAR in the economy sector is expected to only grow by 1%.
Isaac and I both pointed to the soft performance in the lower-end segments to date, but also reiterated that we had forecast a soft first quarter, and that growth is projected to accelerate as the year unfolds.
Bastian was quite comfortable that members of households making over $100,000 per year, and which make up 40% of U.S. households, are willing and eager to travel. It is our expectation that the hotel industry will mirror his sentiment.
He pointed to the availability of Zoom and other video conferencing systems not as a detriment to travel but rather as a catalyst since workers can be more productive anywhere. He did acknowledge, however, that the short-haul demand, especially in the Atlantic corridor around New York City, had fallen, likely because of the ease of video conferencing. When it comes to travelers being more discerning about their work trip, he quipped: “The trips where we used to say, ‘that’s stupid,’ we are not doing those anymore.”
Bastian mentioned frequently the connection of Delta Air Lines with American Express and their loyalty membership benefits, and those comments tied right into the conversation from the prior day on the “Wall Street Talks” panel.
Shai Zelering, managing partner at Brookfield, was clear: “We are done talking about brands. We have nine umbrellas, each with many brands. We should be talking about credit cards.”
Mit Shah, CEO of Noble Investment, agreed that we are seeing the “metamorphosis to an ecosystem.”
Scott Trebilco, senior managing director at Blackstone, went so far, probably tongue in cheek, as to say that in five years, the ticker symbol will not be MAR, for Marriott, but rather BOY, for Bonvoy.
These seasoned owners are in constant contact with their brand counterparts, so I think that their sentiment of the U.S. hotel industry entering the post-brand era is worth watching.
This does not mean that we will have fewer brands; quite the contrary. As net unit growth reigns supreme as a driver for brand stock price, we will continue to see more brands, but the question is if consumers will choose a brand or rather the parent or umbrella company whose logo is on their credit card.
Two other changes at the conference caught my eye. First, it seemed to me that everyone is a banker now. Developers, owners or funds: Every financial player in the hotel space seems to be attracted to the very high returns that can be achieved by providing existing owners with mezzanine debt or other preferred return vehicles.
Part of this is caused by the lack of new development financing.
Jimmy Merkel, CEO of Rockbridge, characterized the sentiment this way: “No banker wakes up, saying: ‘I want to do a hotel construction loan.’”
The CoStar data has borne that out over the past few years, and the change of rooms in the in-construction phase was down 3% in February, leaving developers to look elsewhere for returns.
Along those lines, Shah also acknowledged that Noble had bought tranches of commercial mortgage-backed securities (CMBS) debt.
The other much smaller change — and probably only important to me — was the reappearance of ties for male main stage presenters. I don’t know if the pendulum is swinging back to more formal attire, but I for one, am a fan.
Bob Hunter was, of course, always there. And as he — properly suited, as usual — looked back on his career and stressed the value of relationships at this conference and in this industry, I thought that it was good to see that some things don’t change.
Jan Freitag is the national director for hospitality market analytics at CoStar.
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