LOS ANGELES — Early on in the COVID-19 pandemic, conditions changed quickly, making it difficult for hoteliers to plan ahead. At this point in the recovery, the picture is more clear, with U.S. industry experts saying hotels will have a better, if still bumpy, 2022.
Speaking during the “The Numbers: What To Expect in 2022 and Beyond” panel of the Americas Lodging Investment Summit, hotel industry analysts shared their expectations for the year and what factors will come into play.
2022 Expectations
Back in 2020, the hotel industry lost 60% of all room revenue, said Carter Wilson, senior vice president of consulting and analytics at CoStar’s hospitality analytics firm STR. The next year, a strong recovery was fueled by transient and leisure demand, resulting in about 83% of that lost revenue being recaptured.
While this year is off to a bit of a slow start with concerns over the omicron variant, inflation and labor supply, the U.S. hotel industry recovery is expected to accelerate, Wilson said. STR’s latest forecast calls for nominal average daily rate to fully recover by the end of the year and nominal revenue per available room to recover to 2019 levels next year.
Inflation is a longer-term concern, increasing by 4.7% last year with expectations for it to rise 4.4% this year, Wilson said, citing a forecast by Tourism Economics. Much of that will occur in the first and second quarters and ease by the second half of the year.
Omicron is going to be a short-term problem, he said, noting that even as the delta variant spread, there wasn’t much disruption for the hotel industry.
December was the industry’s strongest month during the entire pandemic, with the week between Christmas and New Year’s recording the highest ADR of any week ever. There has been some softness in the first few weeks of January, but this month isn’t a tremendous month for leisure travel anyway, Wilson said.
“That's all to say, this is a very different type of recovery depending on if you're looking at a nominal or real basis,” he said. “Nominally, next year RevPAR will be back to its 2019 levels. On a real basis, it's going to be post-2025. So to make a short story shorter, it's been a pretty strong recovery so far, but there are still some bumps in the road.”
Rates remained strong during the pandemic, especially compared to what happened in 2009, Wilson said.
“It has been very heartening to see that hotels have really stuck with their rate for the most part,” he said. “What they’re looking to keep in mind is just this existential shift toward leisure.”
In markets where group demand has started to come back, rates have softened, he said. Group rates tend to be lower, so hoteliers in other markets may experience something similar.
Some of the major markets, particularly San Francisco, with exposure to group and international demand are still struggling, Wilson said. New York City's hotel market is starting to come back, but it’s facing about 25% new hotel room supply this year.
“That's going to be a real headwind for them, but yes, they are gaining ground,” he said.
Demand Mix
One of the reasons leisure business has been especially strong in the U.S. is there wasn’t much competition from the Caribbean or Europe, said Cindy Estis Green, CEO and co-founder of Kalibri Labs.
“There will be some drop-off when those kinds of trips become possible again or made easier,” she said.
Hoteliers want to know when business travel will return, but it has already started to come back in the lower- and middle-tier markets, she said. For hotels in those markets, demand from this segment dropped by about 10%. Business travel demand for hotels in large metro areas in the upper, upper-upscale and luxury chain scales fell about 30%.
Much of the business travel that has returned is local and regional, which has helped hotels in several lower- and middle-tier markets and lower chain-scale segments to fully recover, Estis Green said.
Higher-end hotels in the larger metro areas continue to struggle because much of their business comes from the Fortune 500 companies that continue to restrict travel, she said.
“That business will just be slower to come back,” she said. “It’s probably going to take another couple of years before we see it.”
Consumer behavior has changed, Estis Green said. Many can work remotely now, and that has benefited hotels by filling up properties on Sundays and Thursdays, which typically have been low-occupancy days.
“If this pattern continues, it is really, really good for the industry, because we’re filling nights we never sold before,” she said.
Expenses
The pandemic has caused some major shifts in the profit-and-loss statements for hotels, which necessitates hoteliers keep a closer watch on expenses, said Michael Grove, chief operating officer at HotStats.
Much of that change has been in labor costs and the sales department.
Costs have risen due to a supply and demand issue in the labor market, which has also forced hotels to compete for talent across all industries.
Cost constraints have also led hotels to reposition the back-of-house areas, sales and marketing and property maintenance.
The cost base of hotels has been shaken up, so continuing to look back at 2019 is not the way forward, Grove said. As the industry's recovery progresses, hoteliers need to use the tools available to monitor what’s going on in their local markets on a monthly basis.
“We really need to keep focus on the current situation,” he said. “Stop looking backward.”