Leisure Travel Outpacing 2019 And Business Stays Are Picking Up Fast, Hotel Owners Say
The gap between 2019 and 2022 revenue levels in the hotel business is closing, major hospitality landlords said in quarterly earnings calls over the past two weeks, with business travel still falling behind 2019 levels but picking up fast.
Leisure travel has largely returned to pre-pandemic levels, hotel owners said, with occupancy and revenue per available room — the industry’s leading performance metric — returning to 2019 levels. Some U.S. geographies fared better than others, as people sought to escape the harsh winter with visits to Sun Belt and tropical destinations.
Meanwhile, executives cited a post-omicron uptick in business travel in March and April as a reason for hope in spite of threats of inflation and rising costs — although many warned that a full recovery for business travel may not happen until the end of the year.
“Resurging and pent-up business travel, both transient and group, have been the most significant positive surprises in Q1,” Pebblebrook Hotel Trust Chief Financial Officer Raymond Martz said during his company's earnings call. “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.”
Hotels are operating at roughly 90% of their pre-pandemic levels, according to lodging research firm STR. Gross operating profit per available hotel room hit less than $10 below March 2019 levels — the highest since the pandemic — STR Director of Financial Performance Raquel Ortiz said in a statement.
The demand recovery was being driven by group travel in Q1, according to STR, as indicated by areas showing strong recovery: space rentals hit 96% of their pre-pandemic rates, while A/V rentals and catering reached 85% and 72%, respectively.
“The pace of recovery throughout the first quarter was driven by broad improvement across all markets and segments, including sustained leisure strength along with a notable pickup in business transient and group demand which achieved new highs of the pandemic in March, a trend that continued into April," RLJ Lodging Trust CEO Leslie Hale said.
Hotel brands all noted RevPAR growth and a minimal gap between their performances in Q1 2022 versus Q1 2019, attributing a slower return to business travel to omicron’s impact on the sector early on in the year.
“Social and smaller events continue to lead recovery, while demand for company meetings and conventions improved meaningfully throughout the quarter,” Hilton Worldwide Holdings CEO Christopher Nassetta said on a call with analysts.
Hilton’s RevPAR improved 17 percentage points during Q1 2022, he told analysts, ending at less than 6% below 2019 levels. RevPAR increased by 11% from Q4 2021 for Maryland-based REIT Host Hotels & Resorts.
“We saw meaningful improvements within the quarter in transient and group business segments, driven by both demand and significant rate growth,” Host Hotels CEO President and CEO James Risoleo said in a press release.
Despite executives reporting pleasant surprises in business travel returning to pre-pandemic rhythms, weekday bookings remained lower than weekends in Q1 2022. Marriott CEO Anthony Capuano said that weekend ADR remained 4% above weekdays, and CFO Leeny Oberg added that occupancy was in the mid-teens Mondays through Wednesdays in the U.S. and Canada.
But remote work trends are beginning to boost weekday occupancy, Pebblebrook Chairman and CEO Jon Bortz said on the earnings call.
“People, in many cases, are working from home, Mondays and Fridays, and therefore have more of an opportunity to be flexible in terms of location,” he said. “So we are seeing more mixture of business and leisure on weekends, that supplement what we think is already a broader long-term trend of people seeking out more leisure time and more spending.”
Almost all executives said growth was concentrated in destinations that are traditional leisure draws in the winter.
“This quarter, we saw particular strength in Snowbird states such as Arizona, Florida and Louisiana as well as ski destinations such as Colorado, Utah and Montana,” Wyndham Hotels & Resorts CFO Michele Allen said during the company's earnings call. “As we move through the spring break season, April month-to-date results are ahead of March with RevPAR up 8% versus 2019.”
Even though demand is recovering faster than many experts had predicted — with some warning earlier that it would take hotels until 2024 to recover — inflation threatens to eat into profits if it continues at its current pace, STR warned in its analysis.
“Each of the bottom-line metrics showed drastic improvement in March due to spring break travel and increased room rates,” STR’s Ortiz said. “Of course, some of the growth is inflationary, and much of the group demand is leisure-based at this point in the recovery, but there have been gains from the corporate sector as well.”
Leisure’s demonstrated strength so far in 2022 depends on the economy remaining stable, along with consumer confidence and business travel making a full return, according to a statement released by Host Hotels & Resorts ahead of its Q1 earnings call. But with those considerations, Host said, the uncertainty of those factors makes macroeconomic trends and the timing of a full recovery hard to predict.
But with hotels not feeling the full force of inflation yet, executives remained undeterred by the prospect of rising costs during Q1 calls with analysts.
“As we all know, the market worries about lots of things — sometimes appropriately, sometimes inappropriately,” Bortz said. “It's been having no impact on our business levels.”