NEW YORK — The first quarter of 2024 was worse than most hoteliers predicted, but chief executives from some of the world's largest hotel brands projected a great deal of confidence in the industry's outlook.
During the CEOs panel on the first day of the NYU International Hospitality Industry Investment Conference, the heads of major hotel brand companies shared their perspectives on why hotels will weather short-term challenges.
“The best days, I think, are still ahead for this industry,” said IHG Hotels & Resorts CEO Elis Maalouf. He based that sentiment on recent travel to IHG hotels around the world as he transitioned into his CEO role.
The industry’s growth has been linked to growing economies and the growth of the middle class, and even the pandemic didn’t stop that, he said. If people weren’t required to stay at home, they would have been out traveling and dining at restaurants. Once those restrictions lifted, the hotel industry recovered quickly.
Gross domestic product across the globe continues to grow at about 3% to 4%, and the population is growing, especially the middle class, Maalouf said. Hotels are a cyclical business, and they see higher highs and higher lows, a trend that goes back decades. Some of the lows are higher than previous highs.
“If you're a patient as an investor, if you're patient as an operator, you will always have those higher highs and higher lows,” he said.
Anyone who has listened to the hotel C-corps’ recent earnings calls would have heard consistent themes about growth in performance across sectors and geographies, Marriott International President and CEO Tony Capuano said. While the companies didn’t necessarily have the same eye-popping double-digit revenue growth as they did during the recovery, they’re settling into a more normalized environment that includes continued growth.
“Even on the shoulders of record performance, they are building,” he said.
Feeling Bullish
Everyone spends too much time talking about things like quarter-to-quarter revenue per available room growth and not enough talking about the long-term prospect, Hilton President and CEO Chris Nassetta said. Whatever part a hotelier plays in the industry, the long-term view of the industry is positive, even during tough times.
During the pandemic, people doubted the hotel industry’s optimism of a recovery, he said.
“But the reality is, we were right,” he said. “All of us were right.”
Travel and tourism will have a good run over the next ten to 20 years, supported by demographic trends, Nassetta said. Middle classes are growing around the world, and even before the pandemic, people shifted their spending habits to prioritize experiences over material goods.
“People want to see the world, they want to experience things,” he said. “Our industry is going to be a beneficiary of their desire to do it.”
One big shift in travel trends was the off-the-charts leisure demand that sprung from the pandemic, said Mark Hoplamazian, president and CEO of Hyatt Hotels Corp. That lasted for years, and leisure is still growing off that high base.
This year, the big change is in business travel demand, he said. New York City’s transient business demand is up 20% year to date, and that’s not just Hyatt-specific data, he said.
Hyatt’s corporate accounts through April are up 12%, and total business transient is up 6% cumulatively year over year.
“The whole segment for us is growing,” he said.
Bill Gates was among the most outspoken with claims that business travel would be permanently affected by people transitioning to having more video meetings, Hoplamazian said.
Gates "said business travel is going to be down at least 50% forever, and he was dead wrong,” he said, adding that Hyatt hasn’t seen a month go by without a positive year-over-year comparison.
Group is the strongest-performing segment currently, Capuano said. Early in the recovery, this segment had short booking windows, but now groups are booking much further out.
"I think collectively our sales folks find themselves in this interesting riddle, where to get the dates and space and cities that they want, they're saying, 'Can I look five, six, seven years out?'" he said. "I'm not sure you want to lock in those rates, but the demand for group is an extraordinary thing."
From short-term to long, Accor Chairman and CEO Sébastien Bazin said he’s also bullish. Even with slower growth, there are hotel companies seeing 5% to 10%, or even higher, revenue growth for the year.
“There’s so many industries in the world who would love to have those numbers,” he said.
That has to do with the emerging global middle class, he said. The middle class population will be 1.3 billion people in the next 10 years, a quarter of which will probably come from India. They are the customers of tomorrow, first traveling domestically and then internationally.
When he sat on this panel three years ago, Bazin said he predicted that international business travelers will decrease by 25% forever. Instead, what’s happening is international business travel is changing. The number of people traveling to foreign cities for business meetings is down overall, but more small- and medium-sized enterprises are now taking trips.
“We call that business travel,” he said. “This is not international business travel, it's a different form. And that is more stickiness, more stickiness, more loyal and greater repeat business. So, business is back, but different.”
Consumer Affordability
The hotel industry still can command high prices because demand is good while new supply is low, Nassetta said. That said, the broader economy isn’t a one-size-fits-all situation. There are consumers at the lower end of the economic spectrum who are more tapped out, leading to lower demand. The pricing is still good, but there’s less pressure there than in the upper-mid and upper end of the socio-economic spectrum.
That’s where there’s “a little supply and there’s still a lot of demand because people still have a lot of money in their bank accounts, still making a lot of money, still want more experiences,” he said.
“For most people, [travel] still is very affordable, but if you want to really treat yourself, I think all of us have products and experiences where you can really splurge,” Maalouf said. “That's a nice thing about this industry. It is not an elitest industry. We're not a luxury goods business. We're a good-for-everybody business.”
Editor’s note: Chris Nassetta serves on the board of directors for Hotel News Now’s parent company, CoStar Group.