August 4, 2021

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Hotel CEOs ‘Cautiously Optimistic,’ Bullish on Business Travel Return

4 min read

The Memorial Day holiday was a boon for the lodging industry as pent-up leisure demand came roaring back, even setting occupancy or revenue per available room records for the weekend for some major hotel companies. They’re also professing strong faith in the eventual return of business travelers to their properties. 

BWH Hotel Group, which includes the Best Western brand, during Memorial Day weekend had an all-time high in RevPAR, said BWH president and CEO David Kong on Monday during a panel at the International Hospitality Conference webinar hosted by the NYU School of Professional Studies’ Jonathan M. Tisch Center of Hospitality. 

Hilton Worldwide CEO Christopher Nassetta told CNBC that occupancy levels reached nearly 93 percent throughout the U.S. for May 29. 

“We will have the best leisure summer we’ve ever had in the history of this business is my guess,” Nassetta said during the NYU webinar. “Business transient and group will take a bit longer to come back, but we do have real reasons for optimism. China has already seen business transient and group travel back, but they opened up sooner. When we look during the week in business transient, and it’s starting to happen on the group side, underneath is the same pent-up demand released in leisure that will get released to other segments.”

“I think why everyone is positive is they recognize that 2019 was a record year for this industry in terms of growth and consumer travel, and those fundamentals are going to come back,” said IHG Hotels & Resorts CEO Keith Barr. “They haven’t evaporated overnight on a permanent basis, they are just challenged by what we are going through as in industry today. … This industry will come back, it will get back to growth. It’s an industry that outperforms GDP typically.” 

Still, the participating hotel chiefs agreed that the future slope of the recovery will depend on the continued distribution of vaccines, the relaxation of government travel restrictions, the reopening of air routes, the return to school in the fall and the return to offices, which they said is the spur that business travel needs to accelerate that segment’s recovery. 

Business Travel’s Return

“Anybody making predictions in the middle of a pandemic or crisis should really reconsider, because you don’t know what is going to come,” said Hyatt Hotels Corp. president and CEO Mark Hoplamazian during the webinar, citing 2020 predictions from technology executives of permanent changes to travel and work environments. Today, they are singing a different tune, he noted.

“You see major tech companies who made broad declarations in the past saying we’re going to have people back in the office three days a week starting in September,” Hoplamazian said. “You see Big Four firms making public statements about getting back on the road. You see and hear about banks and financial institutions planning for large-scale get-togethers. That’s a huge change in mindset in a pretty short period of time.”

Marriott International CEO Anthony Capuano said he’s “very bullish on the recovery of business travel. … Talk to a partner from any consulting firm and ask them what their plans are. They may say they’ll moderate a bit. But then you ask them, ‘What happens the first time you decide to make a pitch via technology, and your primary competitor makes the trip?’ Their quick response is, ‘Then all bets are off and we’re right back to traveling the way we were pre-pandemic.’ ” 

Labor Challenges

One obstacle still facing the U.S. lodging industry, however, is the labor shortage, which is adding to the cost of operations as some suppliers have raised pay to attract employees. 

“Wages have already gone up tremendously, and we expect that to continue,” Kong said. “Last year, before the pandemic, it was a challenge. Now, it’s a crisis. We have to do a better job in providing a better environment for our team to retain talent and attract more talent.”

“Talent and teams are so critical,” said Accor chairman and CEO Sébastian Bazin. “We touched upon the biggest worry over the next few weeks … of course summer will be great. But do I have enough talent to service future clients? … It’s a difficult task.”

ADR Resiliency

Unlike past crises, when hotels would lower rates to maintain occupancy levels, room-rate integrity has been stronger than many suppliers anticipated. 

“The room-rate story has been really encouraging for all of us,” Capuano said. “What we are seeing is real pricing power. We looked across our entire U.S. resort portfolio Memorial Day weekend, and average rate was up 35 percent over the same weekend in 2019. We’re seeing really strong growth in trends in [average daily rate].”

Kong told a similar story for BWH. “I think this will be sustainable,” he said. “We sold the highest rate ever achieved over Memorial Day weekend for the U.S. hotels. … People are feeling much more comfortable raising rates. Part of it is driven by necessity. You have labor costs going up, all the other costs going up, you have to find a way to offset it. I think increased pricing will be something to expect in the future, because the reality is we will have big inflation for years to come.”

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