On top of the sustained strength in leisure travel demand, signs point to business and group travel recovering at a faster pace than many hotel executives anticipated.

During calls with analysts to present first quarter earnings results, executives at publicly traded hotel brand companies and real estate investment trusts spoke about how their hotels are booking a larger number of groups and transient business travelers, both during the quarter as well as throughout 2022.

“Group demand in the U.S. and Canada accelerated sharply during the first quarter of last year. In March, group [revenue per available room] was 16% below 2019, compared to down more than 30% in the fourth quarter. Growth in new bookings has contributed to a meaningful improvement in group pace for the remainder of the year. As of March 31, group revenue pace for the remainder of 2022 was down in the high-single-digit range compared to 2019.

“We also expect additional short-term bookings to further boost group revenues. April was the eighth month in a row where in-the-year-for-the-year group bookings exceeded 2019 levels. Importantly, our sales teams remained focused on driving [average daily rate], which has continued to rise for new bookings. ADR for managed hotel bookings made in January was 3% above 2019 levels, while ADR for bookings made in March had risen to 12% above pre-pandemic levels.

“Business transient demand in the U.S. also gained momentum during the quarter. Recovery in March improved notably compared to the fourth quarter, with business transient room nights down 10% to 15%. Special corporate accounts, which tend to be larger companies, have recovered more slowly than smaller-sized businesses, which have now fully recovered. Special corporate new bookings strengthened in March and further advanced in April.”

“Strong leisure transient trends continued to boost weekend performance with RevPAR in the quarter exceeding 2019 levels and rates up approximately 9% versus prior peaks. … U.S. business transient RevPAR increased sequentially versus the fourth quarter of 2021, with March down only 9% compared to 2019 levels. … Overall business transient now comprises 45% of total segment mix, just 10 points shy of pre-pandemic levels. … On the group side, social and smaller events continue to lead recovery, while demand for company meetings and conventions improved meaningfully throughout the quarter. In March, total group RevPAR was more than 75% of 2019 levels. … Compared to 2019, our tentative booking revenue is up significantly, with rate gains for company meetings up more than 13%. Additionally, rates on new group bookings for in-year arrivals are strong, up in the high single digits versus 2019.”

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April 28, 2022 04:18 PM

First Quarter 2022: Hotel Leaders Split on Whether Upcoming Summer Travel Season Will Exceed 2021

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"Group business, which accounts for a sizable portion of our stabilized total revenue base, has accelerated meaningfully through March and April, and we anticipate this will be an area of outsize strength for us as the recovery progresses in the coming months. Compared to 2019, group revenue at our Americas managed hotels was down only 8% in April, while gross group revenue booked for the same hotels was 20% higher in the first quarter, 37% higher in March alone and 42% higher in April for stays that will take place this year. Our conversations with corporate and association customers reveal an intense focus on in-person interaction and connection. As organizations prioritize nurturing their corporate culture, reconnecting with customers and well-being for their employees. As a result, given that we have significant exposure to the customer segment, we tend to disproportionately benefit from the resurgence in group meetings that we believe will occur in the coming months and years ahead."

“Consumers who have built up their savings during the pandemic and are experiencing rising wages are pivoting towards spending more on experiences than on durable goods. In fact, this year research shows that Americans are expected to budget more on domestic leisure travel compared to pre-pandemic levels.”

“In the first quarter, we witnessed sequential quarter-over-quarter increases in our business travel bookings, with demand continuing the steady progression back to 2019 levels. We expect business travel in our key industry verticals to increase, fueled by the additional onshoring of the U.S. supply chain and investments from the infrastructure bill. The strengthening of group travel demand we expect this year will also serve as a catalyst for our portfolio. By establishing our strong foundation within the small group travel segments, we positioned Choice to benefit from the recent demand shift towards smaller-sized needs.”

“Demand from our everyday business travel segments also continued to increase in the quarter. And infrastructure accounts, which represent the majority of our domestic business segment, contributed 16% more revenue to our hotels than in the first quarter of 2021, driven by the uptick in government spending. And with the recent passage of the $1.2 trillion infrastructure bill by Congress, which includes approximately $550 billion in new spending that will be invested in core infrastructure projects over the next five years, our teams have been more focused than ever on the organizations that are contracting for the construction of U.S. roads, bridges, levees, dams, ports and waterways. And encouragingly, our franchisees are already seeing steady and consistent pickup in these types of infrastructure accounts, and these accounts made up more than half of the newly negotiated business contracts that our sales team signed this quarter. …

“If you look at every survey that's out there … Americans are ready to travel at levels that are the highest that have ever been tracked, ever been surveyed since the onset of COVID. I mean, 91%, in the most recent U.S. Travel survey, are saying that they plan to travel in the next six months. And again, we believe that domestic drive-to destinations will continue to outperform and continue to give our franchisees the opportunity to drive rate.”

“In particular, the second quarter will be very strong for our group business, and that's because our team was able to rebook many of the group customers that canceled back in January into the second quarter. As we've grown [the business], we've diversified our revenue streams ... [and] through our event strategy and through our marketing strategy, we've been able to really drive levels of business across the year that really keep our properties running at an optimal level. But the group business, of course, was down in the early part of the year, but we're seeing it continue to grow and will exit the year at about 90% of 2019 levels.”

“We saw meaningful improvement in banquet and [audio visual] revenue as group business continued to return. In the first quarter, banquet and AV revenue increased by $24 million, up 17% over the fourth quarter. As groups get back to in-person meetings, we expect the trend of higher out-of-room spend to continue. Looking forward to our expectations for group in 2022, we currently have 3 million definite group room nights on the books, which compares favorably to the 2.7 million group room nights we had on the books for 2022 as of the fourth quarter after adjusting for our recent dispositions.

“Group rate in 2022 is up 4% to the first quarter of 2019, a 300-basis-point increase over the last quarter, with 1 million definite group room nights on the books in the second quarter. This represents 82% of second quarter 2019 actual group room nights. Last quarter, our 2022 definite group room nights on the books represented 60% of 2019 actuals. Adjusted for our transactions and including bookings from the first quarter, 2022 definite group room nights now stand at approximately 70% of 2019 full year actuals.”

“Resurging and pent-up business travel both transient and group, have been the most significant positive surprises in Q1. Not only are they recovering but doing so at a faster pace of recovery than what we are forecasting.

“These trends are accelerating in the second quarter with strong booking trends and increasing rates. Group bookings, leads and site visits have increased substantially over the last 90 days and the booking window for both leisure and group has been stretching out. These trends are continuing into Q2 and for the balance of the year.”

“The substantial improvement in our midweek trends further validates that the acceleration in business transient and group demand is driving our urban performance. Our weekday RevPAR in March was nearly 80% higher than in January and represented a new high of the pandemic, achieving 76% of 2019 with our weekday ADR achieving 91%. With respect to business transient, the continuing growth of [small- and medium-sized enterprises] travel was bolstered by the return of our traditional corporate accounts from a diverse base of industries such as aerospace, financial services and the insurance sector. This accelerated our business transient revenue by 70% between January and March, with March achieving 55% of 2019 levels, which was the highest watermark of the pandemic. Our RevPAR growth was aided by our corporate rates maintaining strength, which we expect to continue going forward.

“Our group segment also accelerated throughout the first quarter as group demand broadened to include more corporate events, such as employee trainings and off-site meetings. Corporate groups now represent approximately 50% of our current group bookings. We also benefited from citywides being held as in-person events, with attendance level holding, all of which drove a meaningful increase in our in-the-quarter,-for-the-quarter group revenues, with March RevPAR achieving 74% of 2019, which was also driven by ADR increasing to 95% of 2019.”

“Today’s travelers focused on experiential travel, especially in leisure. We believe that our portfolio of 14 resorts will continue to outperform for the foreseeable future because consumer demand for frequent leisure trips has accelerated. … Importantly, thus far at resorts we have seen little pricing resistance ... and encouragingly the advance bookings at our resorts, even as far out as 2023, are at rates higher than this year.

“On the group side, we are well-positioned with strong citywide [events] demand in our key group markets this year and next. Meeting players are actively booking, and we expect to exceed our budgeted goals for 2022. The pent-up group demand and the need to meet make it likely that group bookings will hit new highs over the next few years. The last thing to recover, business transient, is coming back, and it has increased dramatically in just the last few weeks. While we are seeing big jumps in BT demand, we should point out that is coming from very low levels. We still expect BT recovery to take some time to fully heal and it will vary significantly by city."

“We continue to benefit from meaningful pricing power throughout the portfolio, highlighted by record average daily rate in our resort segment, which finished the quarter 10.5% higher than the first quarter of 2019.

“We also began to see significant growth in our urban portfolio, particularly midweek as contribution from corporate group negotiated and business transient demand segments, as well as compression from convention activity in numerous markets, drove strong occupancy levels throughout March and April. …

“Similar to our results in the back half of the first quarter, April’s better-than-expected performance was driven increasingly by accelerating demand in our urban portfolio, which helped offset the end of the traditional spring break period and the timing of the Easter holiday weekend.”

“We are optimistic about the remainder of the year, especially our seasonally strong second and third quarters, as preliminary April results show continued increases in occupancy, ADR and RevPAR pushing past 2019 levels — a meaningful milestone for our portfolio. Recent performance is both a reflection of the continued strength in leisure and the ongoing recovery in business demand. For comparable hotels, weekend occupancy and ADR exceeded 2019 each month during the quarter. January and February weekend occupancies were 63% and 78%, respectively, and March weekend occupancy was 85%.

“Our comparable portfolio generated 123,000 total group room nights in the quarter and the group segment comprised roughly 36% of our total demand. This group room night volume represents a 33% increase from the prior quarter with average rates that were 7% higher than the same quarter in 2019.

“Group production for all current and future periods in Q1 was 152,000 room nights and was consistent with 2019 first quarter production. In terms of transient business, which accounted for roughly 55% of our total room nights in the quarter, comparable transient rate came in at $314 and was 14% higher than the pre-pandemic levels that we saw in the same quarter of 2019.

“The lingering impact of the omicron variant in January and February led to lower levels of special corporate demand in the quarter, but we are seeing recent positive signs that should lead to acceleration into the remaining quarters of 2022 as companies increasingly return to the office and business travel becomes more widespread.

“Leisure demand continues to be very robust, and we again saw tremendous strength in average rates at our Oceanfront Resort Properties with both rate and RevPAR meaningfully higher than pre-pandemic levels.”

“We expect that continued healthy leisure demand during the spring and summer vacation seasons increasing amounts of business travel, strong citywide calendars and the return of corporate group functions will support sustained growth as the year progresses. Our recent booking trends are indicative of this, as our group room nights for the second quarter through the fourth quarter of 2022 are pacing at approximately 80% of pre-pandemic levels at an average rate that is 4% higher than 2019. This would imply that our overall group revenue pace for this time period is only down 18% from the same time in 2019. There is clear pent-up demand for corporate group events, and we are seeing increased short-term booking activity.”

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