As Business Travel Falters the Hotel Sector Faces Protracted Recovery

Sara G. Norris

The hotel sector is likely facing a “protracted recovery,” with experts from Moody’s Analytics predicting certain segments of business travel may never fully return to pre-pandemic levels. 

Permanent declines are expected within the range of 10 and 30%, Moody’s analysts note in a recent report on the future of the sector, as would-be business travelers increasingly substitute technology for in-person meetings. 

While hotel fundamentals mirrored recovering travel metrics, with RevPAR up 87% in Q3 and occupancy up 33% nationally, “the hotel sector has experienced a tremendous period of instability since travel restrictions practically eliminated both leisure and business travel,” the report notes. 

The summer months were a boon for the sector, with occupancy rising above 60% and staying at that level for the first time since February 2020. Occupancy peaked in July at 67.3% and slumped to 60.8% in August as the delta variant began threatening reopening plans and the lifting of COVID restrictions in many jurisdictions. The metric slipped to 57.6% in September. By the Thanksgiving holiday travel weekend, traveler throughput peaked at 90.9% on November 26⁠—but that may prove short-lived, especially as the rise of the omicron variant dampens consumer desire to travel.

That’s particularly true, according to Moody’s, for business travelers. In 2019, the share of business travel comprised 20% of all travel, and the gap between now could be as high as 30%.  As of Q3 2021, average quarterly upper tier RevPAR was at just 73.3% of 2019 levels, while the lower tier has recovered to 93.5% of its 2019 level.  After peaking at $89 in 2019, RevPAR declined to $31 throughout 2020⁠—and while the metric in both upper and lower tiers declined from Q2 levels, Moody’s predicts the Q3 national level of $71 will increase steadily into 2022.

Moody’s notes that IHG Hotels & Resorts reported strong corporate bookings in Q3 for their Holiday Inn brand, with revenue moving towards pre-pandemic levels in a “strong sign for business travel.” Room revenue also increased by 66% for the brand’s Crowne Plaza, Regent, and Hualuxe offerings. 

“A lot of this success can be attributed to higher vaccination rates and fewer travel restrictions. While the leisure and hospitality sector will always be susceptible to downward pressure resulting from new variants and remote work options, the desire to travel for business is staging a comeback,” the report notes.

Long Island, San Bernardino, and Denver led occupancy rates in the third quarter at 70.2%, 68.0%, and 67.4%, respectively.  The top metros for room rates were New York ($225), Oahu ($216), Boston ($182), and San Diego ($167). 

So what’s next for the sector?  According to Moody’s, “the very lockdown restrictions that made it impossible for visitors to stay in hotels for much of 2020 have propelled the sector’s recovery in 2021 and for the coming year, barring any major new curbs to travel given concerns over emerging variants.” 

“As evidenced by the number of people traveling, the Delta variant already has shown that, while demand might dip temporarily over infection concerns given new information, a strong appetite among holiday travelers to go on vacation, and explore areas beyond their immediate vicinity remains. The residual uncertainty for hotels centers on business and conference travel, which not only brings in higher volumes of hotel occupants but usually also engenders higher demand for prestige properties,” the report concludes. “Even amongst this set of travelers, there is a cautious willingness to venture out and meet in person once again with clients and colleagues.”

https://www.globest.com/2021/12/17/as-business-travel-falters-the-hotel-sector-faces-protracted-recovery/

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