LOS ANGELES — Three trends give U.S. hoteliers confidence that demand for hotel rooms will continue to grow this year: remote work, rising wages and a larger population of retirees.
Speaking on a "Boardroom Outlook" panel at the 2023 Americas Lodging Investment summit, Pat Pacious, president and CEO of Choice Hotels International, said these are long-term fundamentals that bode well for leisure travel.
“If you look at remote work, it’s really sort of lifted that constraint of time where the workweek is now maybe three days a week and the other two days of the week people have the flexibility to work from anywhere,” he said. “In our business, we’re seeing more Thursday night check-in for weekends and Monday morning check-out.”
Wages are “more sticky” than other aspects of inflation, Pacious said. And with the middle class benefiting from rising wages, Pacious added those individuals are using that extra income on leisure travel.
Additionally, the labor force participation rate is significantly below where it was pre-pandemic, he said.
“With all the retirements that you’re seeing … a lot more people have freedom to travel because they’re not in the workforce,” he said.
Jim Merkel, co-founder and CEO of Columbus, Ohio-based private investment firm Rockbridge Capital, said to be in the hospitality industry, you’ve got to be optimistic.
However, to successfully develop, own or operate hotels, hoteliers must understand the demands of travelers and meet or exceed them.
“Twenty years ago, we were redeveloping and developing hotels in a much different way than we’re doing it today. It’s simply to create places where people want to be. ... In order to be successful you’ve got to meet the demand on what it wants,” Merkel said. “We certainly have headwinds; we generally look at it as the wind behind us instead of in our face. We’re still going forward; we just might have to do a little more tacking to get to the destination.”
Business travel continues to lag leisure in the U.S., but Pacious said that's not necessarily a bad thing for Choice.
More travelers are paying for their own overnight stays, instead of relying on corporate budgets, and “they tend travel in the upper midscale, midscale and economy segments,” he said.
“We’ve always had a strong base of retired baby boomers, and we’re seeing more of that influx into our hotels,” Pacious added.
Danielle Bozarth, senior partner of global management consulting firm McKinsey & Company, said consumer trends also give her optimism that leisure travel demand will remain strong, but the question is how hoteliers will balance higher demand with the higher costs of doing business to improve profitability in 2023.
Elie Maalouf, CEO of the Americas at IHG Hotels & Resorts, said after years of recovery, and a full restart in 2022, the hotel industry will accelerate this year.
“Acceleration in the U.S. went from paused during COVID to [a] restart last year. This year, I think we’re going to accelerate. We see inflation weakening; we see supply chains resolving; we see interest rates are probably going to peak. We’re probably going to have a soft landing,” he said.
For global travel, the reopening of China will fuel the acceleration, Maalouf said.
“Our southeast Asia business is already feeling the growth of China’s traveler. Of course, it’s Chinese New Year, so a lot of travel right now is within China. We think after Chinese New Year, we’re going to see more international travel. We have a duty, frankly, for us to be ready for that, process those visas, to be welcoming, because that is the fastest-growing international travel segment,” he added.
Sloan Dean, president and CEO of Dallas-based third-party management company Remington Hotels, said group demand at his hotels is “not only back, it’s better than it’s ever been,” albeit with a few exceptions such as San Francisco. Remington’s portfolio largely consists of full-service hotels, which are properties with restaurants.
“Our bookings September through December were over any prior month all the way back to ’19,” he said. “Full-year ’23, I think you’ll see a lot of companies talk about how group is up not only single digits, [but] double digits to 2019.”
Dean said that speaks to the health of conventions and social business. Group demand for hotels is making up for the lack of midweek business travel, though travel from midsize and small businesses has already exceeded 2019 levels.
“If you’ve got a hotel that’s reliant on mid and small businesses, you’re doing quite well,” he said.
Dean added that while inflation in the U.S. has “absolutely been tamed ... the one thing that’s not tamed is the labor market.”
“Unemployment is still down … and wages are still expanding. That’s why you’ll see the Fed step up rates in February and March but what does that mean? It means more discretionary spending from people that are earning over $150,000 … and they’re going to spend that on travel,” he said.
New Brands To Capture Demand
Three new hotel brands — from Hilton, Accor and Sonesta — have already launched in 2023, which is a reflection of the confidence that hotel brand executives have in rising demand from guests.
Panelists said there's no easy, single answer to the question often asked: Are there too many brands?
It depends on the company and its strategy.
“At IHG, we have a strategy to be the leading hospitality company in the world, serving guests and meeting owner needs where they want to invest — from mainstream all the way up to upper luxury,” Maalouf said. “So then you look at what segments do you need to be in, what brands do you need to be in to meet guests’ evolving needs and owners’ capital investment desires. Where you are in a segment, you grow it; where you’re not in a segment, you go into it.”
Merkel said the proliferation of hotel brands inherently leads to some overlap, but ultimately a brand mitigates risk for the owner.
“Even within each of the brand families, some brands are better than others at that equation … [but] who am I to say that there’s too many or too little of brands? If it’s good for their business and people are buying it, then OK,” he said. “Each segment is a little bit different as well, where you have the opportunity to differentiate.”
The brands that are best at maintaining their purity are going to have loyalty from the customer, Merkel added.
Pacious said scale does matter, and it’s not just hotel brands that are proliferating.
“We’re talking about the alternative lodging players; we’re talking about the OTAs as well. All of them are after the same customer, whether it’s leisure or business,” he said. “Being a small player, when we looked at Radisson, the business delivery for those hotels and their loyalty contribution was half what ours is going to be. Their OTA contribution was double what ours is going to be. By being on our platform, their channel mix is going to shift in a way that’s going to be very profitable for those owners. You bring in less OTA business with high commission; you bring in more loyalty program members who are your most efficient means — that’s the right way to think about it.”
In 2022, Remington announced its $26 million purchase of fellow third-party management company Chesapeake Hospitality. Dean said Remington didn’t pursue this deal for financial accretion but rather for organizational reasons.
This deal worked well because there was no overlap in ownership groups between the two companies, Dean said.
“It gave us access to 16 new capital partners. Post-transaction, where there’s been a lot of [mergers and acquisitions] in third-party [management companies], and I would say messy M&A, I think the owners of the Chesapeake hotels that we manage for are happier than they’ve ever been,” he said. “I think what’s going to be different about us versus maybe some of the large competitors of mine, is that we really want to focus on upscale [hotels] and above, and independent hotels. We think those are swim lanes that are not commoditized.”
