ATLANTA — Leisure travelers are now more willing to taking trips "by a long shot," according to Tourism Economics President Adam Sacks.
During the "Navigating the Perilous Road to Recovery" general session at the Hunter Hotel Investment Conference, Sacks said when the omicron variant of COVID-19 emerged, there was a dip in air travel, but it was smaller in comparison to when the delta variant hit just a few months before.
The highest volume of air travel relative to 2019 occurred during the first three weeks of March 2022, he said.
Recent data from STR, CoStar's hospitality analytics firm, showed weekly U.S. hotel industry average daily rate above 2019 levels, while occupancy was about 10% below the comparable week of 2019.
"I'm not overly concerned about the difference ... look how far we've come from March of 2021; occupancy rates were down 20% [relative to 2019], so we are on our way," Sacks said. "Even despite worries, the traveler is more and more ready to go than they have been since all this started."
What Will Drive US Economic Recovery?
Sacks said the strength of the economy will continue to be a driving force for the lodging market.
That's not to say some consumers aren't worried, but those concerns are mostly offset by a strong overall jobs market and healthy household balance sheets.
"Above expectations, 678,000 jobs [were] added in the month of February. At this point, we are just 2 million jobs shy of where we were before this pandemic. Keep in mind, we lost 22 million jobs in the spring of 2020 and we're now 2 million off that mark," he said.
Combined household wealth in the U.S. has totaled to $130 trillion over the past two years, Sacks said. Additionally, household spending is shifting away from goods to services.
"That is where we see the growth moving forward," he said, adding retail sales are now 25% ahead of pre-COVID-19 levels.
It's reasonable to expect that growth will slow down over the next 18 months. After strong GDP growth of 5.7% in 2021, Sacks anticipates that will fall to 3.4% this year. GDP growth is expected to further contract in 2023 to 2.1%.
What Could Impede US Hotel Recovery?
Sacks said potential speed bumps for the industry's recovery could include another uptick in COVID-19 cases, the war in Ukraine, labor constraints and runaway inflation.
He said inflation might be the No. 1 concern for the next few months, but it's expected to taper off at the end of 2022.
In terms of labor, the leisure and hospitality segment has a job openings rate of 10%.
"For every 10 jobs that exist in leisure and hospitality, there's a job opening," he said. "Right now, hotel employment in the U.S. is 20% below where it was pre-pandemic, so this is an acute issue."
The question moving forward is what "the baseline operating approach" will be for the hotel industry, Sacks said. Not only is staffing availability low in some markets, the quit rate in leisure and hospitality jobs is more than double what it is for the rest of the U.S. economy.
Sacks said it's not surprising that wages are rising, especially in low-income categories, and while that's not a bad thing, this does have an effect on the cost and operational structure for the hospitality industry.
Current Outlook
Though multiple headwinds are at play, they aren't enough to derail the progress that's been made, Sacks said. Surveys show that intentions to travel for leisure trips remain high, and improvement in corporate and group travel is ahead.
Public hotel brand stocks, specifically Hilton and Marriott International, have been beating video communication software company Zoom's stock price since February 2020, relative to 2019, he said.
Room demand in the fourth quarter of 2021 was just 4% shy of 2019 levels. Tourism Economics predicts that hotel room demand in the second quarter of 2022 will surpass pre-pandemic levels, Sacks said.
Average daily rate is expected to fully recover this summer on a quarterly basis. Recent weekly data shows ADR above 2019 levels.
"Revenue managers have done an incredibly good job during this downturn," he said. "We've never before seen a situation where rate is recovering before demand."
Sacks said against the consumer price index, ADR has actually lagged.
"Rate, while it has preformed extraordinarily well compared to what we have seen in other downturns, remains behind the overall inflation market," he said, adding real inflation adjusted rate in 2024 will still lag 2019 levels.