NASHVILLE, Tennessee — Whether a recession is approaching in the short-term future or not is uncertain, but revenue managers and analysts agree that the effects of one wouldn’t be harsh on the hospitality industry. After dealing with the COVID-19 pandemic the past few years, any impending problem isn’t as frightful as it once was.
Hotel revenue managers discussed the concerns of a potential recession and how the pandemic strengthened them for one in a roundtable discussion hosted by Hotel News Now at the Hotel Data Conference.
Nicole Havens, vice president of revenue management, digital and distribution for Peachtree Hospitality Management, said managing through the pandemic has prepared her team in the case of another rough patch.
“As it relates to our industry in a recession, at least over the past couple of years, we’ve become very comfortable being uncomfortable,” Havens said. “What that has done is it’s helped us be more nimble in our strategies and our ways to overcome adversity.”
Isaac Collazo, vice president of analytics for STR, CoStar’s hospitality analytics company, agreed that the damage of any future crisis wouldn’t measure up to the pandemic.
“Anything that comes will not be like COVID,” Collazo said. “This was the worst thing that’s ever happened [in the industry]. Anything that happens after this, we’ll deal with it because we just [dealt] with a near-death experience, literally.”
The pandemic also served as practice for dealing with labor shortages. Companies in the hospitality industry now have strategies in place to be flexible with layoffs, said Linda Gulrajani, vice president of revenue strategy and distribution at Marcus Hotels & Resorts.
“Now we know how to eliminate people, we know how to evaluate, when to bring them back — we’re so much better at adjusting and adapting,” Gulrajani said.
Recessionary Effects on Rate
Average daily rate might start to go down, but that’s not the result of a recession, Collazo said.
“I do think we’re going to see a slow in growth — it has to slow, what we’ve seen in the ADR growth. But that’s not a recession — that’s a reversion to the mean,” Collazo said.
Priya Chandnani, vice president of revenue strategy at Benchmark, Pyramid Luxury & Lifestyle, said she’s proud of the industry holding onto high rates, as it served all well. As for a decrease in rates, she agreed it would be more of a normalization than a cause of concern, but so far, there hasn’t been any signs of it.
“This is us stabilizing, this is us going back. And even when you look at that demand slowing down, it’s not impacting our rates. Rates are still higher than they [were] in 2019; that’s not slowing down. We’re uber protective of that,” Chandnani said.
Gulrajani said the potential wild card at play if there is a recession is hotels severely dropping their rates because they’re so desperate for cash flow. This strategy has been avoided through the pandemic, but a few bad decisions from others could kill the market and bring everyone down, she said.
The level of demand would have to drop drastically to cause the kind of desperation that would lead to a significant undercutting of rate, but the effects of a strategy like that are long-term, Collazo said.
“Once you lower your rates, you can’t get them back up, so why would you revert your rates?” he said.
What the Numbers Say
Collazo said it’s difficult to tell, but there’s no indication that a recession is on the horizon given the current job numbers.
“None of us know. But if you look at the data at this point, there are still more jobs available than applicants,” Collazo said. “Jobs are growing. We don’t go into a recession with that kind of scenario. It’s never happened.”
If the job numbers take a dip, though, a recession could be on the way, Collazo said, but he’s optimistic that it would be mild.
According to Tourism Economics, 41% of lodging spending is from higher-income individuals, Collazo said. The growth in jobs has largely been on the professional side, and the unemployment rate for college graduates is at a near low, so the pool of people who hit the average traveler criteria is actually growing.
“I don’t believe [a recession would] impact the hotel industry because the people who tend to travel are going to be insulated as they’ve been insulated with inflation,” Collazo said.
Another insulation for the hospitality industry is the room for growth in big corporate travel, he said. There’s no room to cut back on it if it never returned to pre-pandemic levels in the first place.
Gulrajani said she’s optimistic that a recession can be avoided and agreed that if there is one, it wouldn't be massive. From a revenue manager’s perspective, she said she wants hotels to be decisive with their planning for next year and either plan for one or not.
“Either you’re all in or you’re all out. Either we’re going to have a recession or we’re not. There’s none of this gray, in-between area,” she said.