Report finds hotel industry will continue "spotty" recovery in 2022
A new report from the American Hotel & Lodging Association finds U.S. hotels lost nearly $112 billion in room revenue during 2020 and 2021, as the pandemic curbed business and leisure travel. And although COVID-19 restrictions like mask mandates are being eased in many places, the recovery is not expected to be smooth. WAMC's Jim Levulis spoke with the Association’s President and CEO Chip Rogers.
Rogers: The biggest takeaway is the fact the industry is recovering. It's a spotty recovery. Some places are back to 2019 levels, some places will still struggle for a number of years. But we're headed in the right direction. 2022 will be better than 2021, which was better than 2020. And so things are looking a little bit better. But ultimately, we're going to have a different looking environment once we get fully past the pandemic.
Levulis: What might that environment look like?
Rogers: People working from anywhere has really helped our industry and I think it's going to sustain our industry for quite some time. We know based on our studies that business travel or business travel alone is going to really struggle to return to pre-pandemic levels. But this idea of “bleisure” travel with people in mixing business and leisure has really taken off. In fact, our survey found that almost 90% of all people that are traveling for business are now mixing and leisure, which means their stay gets extended by a day or two because they're enjoying whatever city they're going to and so we think that's a really healthy trend for the industry.
Levulis: And yeah, I want to touch on the business travel there. The report finds that business travel is expected to remain down more than 20% for much of this year. And back in 2019 it made up 52% of hotel room revenue. Has the pandemic changed business travel for good? Do you expect it to return to pre-pandemic levels or will those you know those conferences that people would travel to every year are those being done virtually now?
Rogers: I think the conferences will return. I've been to a lot of conferences over the last year. I've been traveling throughout the entire pandemic. And it has gotten close to normal. The challenge now, of course, is scheduling those conferences. I think what will change forever, are the one-day business trips that now people are comfortable doing through some sort of technology. And so, you know, in the past, particularly on the East Coast, you might fly from Washington, DC to New York, do a trip, do a dinner, come home the next day, those are probably going to change forever. But again, people who are going on extended business trips for two or three days and adding to that a day or two of leisure because they can work remotely anywhere that's going to more than make up for it. So we think the future is very bright.
Levulis: And is that what you mean by the “new” traveler? Your report mentions that 2022 is going to be the year of the “new” traveler, is that leisure mixing in, what you mean by that?
Rogers: Leisure mixing it with business, absolutely. And then the second part of that just a lot more leisure travel. We expect the 2022 leisure boom, to the maybe record breaking, which would be wonderful. Now as you indicated, in our business, more than half the revenue traditionally comes from non-leisure travel. So even if we do have a record-breaking leisure travel season, it's probably not going to make up for the business travel that's not there. But we certainly welcome it. And we think that's a trend, it's going to stay for quite some time.
Levulis: Going back to room revenue, the report notes that hotels lost nearly $112 billion in room revenue in 2020 and 2021. If revenue is still expected to be below pre-pandemic levels, you mentioned sort of the bumpy recovery, can chains hang on?
Rogers: Yeah, they can. And it's important for people to remember in the US, this is a franchise model. And so when you look at major brands, global brands like Hilton, Hyatt, Marriott, those brands typically anywhere from 85 to 90% of the hotels are owned by somebody else. So the brands will survive. Now the individual hotel owners in specific markets will continue to struggle. And then in other markets like South Florida, they're doing exceptionally well. And so it will be a spotty recovery, there still will be struggles in the industry. But overall the health of the industry is getting much better. But as you indicated, digging yourself out of $110 billion hole just for room revenue, that doesn't even include the ancillary revenue, that is a massive undertaking that's going to take years to recover.
Levulis: And have hotels been able to access and put to use the millions of dollars in state and federal COVID-19 relief money that was meant for the hospitality industry?
Rogers: In most places. So the PPP, absolutely. That was a lifesaver that kept a lot of hotels in business. The American Rescue Plan money which was money given out by the Biden administration through Congress to the state and local level that has been rolled out over a number of years. Some states are doing a great job with it and giving direct assistance to those businesses that we're hurt most. Other states are using it to encourage travel moving forward. We like any and all the options. Some are better than other but anything that can help our industry we're certainly supportive of. And that's going to continue to roll out over the next few years.
Levulis: And taking a look at New York, hotels in the state lost nearly $15 billion in 2020 and 2021, reflecting a state and local tax revenue loss of more than $2.6 billion during those two years. Do you foresee, you know, governments taking another look at the tax rates on rooms given those losses and the trends that we've been discussing as it pertains to travel?
Rogers: Well, the last thing we would want them to do is raise taxes, because there's a lack of revenue coming in because lack of revenue was directly related to the fact you had fewer people traveling. If you raise the tax rates, that's going to exacerbate that problem and make it even worse. So we certainly hope that they do not do that. There are ways that they could encourage travel. If you look across any state, usually the return on investment for investing in travel promotion is more than 10 to 1. I was in Florida just yesterday morning and having a meeting and working with their visit Florida team and their return on investments, $26 back to the state for every dollar they invest in encouraging people to come to Florida. Now, every state is different. But across the board, we see that trend continuing. So if local governments and state governments want to recoup some of the money they've lost, the best thing to do is invest in people traveling to your city to your state.
Levulis: And with all that we've been discussing, turning to the consumer side of this, as it looks to 2022 and the spring, this summer, what's the forecast for room rates in 2022?
Rogers: Room rates are going to continue to climb. I mean, inflation has really hit our industry. If you look across the board, just on the labor side, which has been the biggest challenge we’ve faced in the last eight months, the rate of inflation for the cost of labor has been double digits. And then when you layer on top of that the challenge in getting goods and services, the industry has really been hit hard by these inflation numbers, which means you'll ultimately have to pass those along to the consumer. So rates will continue to go up. My advice for everybody, if you're taking a spring or summer trip, book that trip right now get those rooms locked in right now, because the rates are not going to go down over the vacation season.
Levulis: You mentioned the workforce there. The report finds hotels are projected to end 2022 down 166,000 workers in the US or 7% compared to 2019. Is that because of a lack of work due to the curb in travel or a lack of workers, can't find the people to fill the positions?
Rogers: Definitely the latter of those two. It is a lack of workers, the work is there. And in fact, most people in the industry are really overworked right now, which is one of the reasons people are leaving the industry because the demand that hit us last summer was significant, it's going to be even bigger this spring and summer. And so there are hundreds of thousands of open jobs available right now. And just having a very difficult time finding people to fill those jobs. For example, a housekeeper job, which is an entry level job, the wage rate on those increased by about 15% year over year last year, and that was on top of increases in 2020.
Levulis: Kind of taking a step back away from the report here. When it comes to travel, hotel bookings and the pandemic impact, we spoke about the impact on business travel, but when it comes to leisure travel, do you think part of the reason why hotel revenue is down is that people are seeking out spaces, you know like Airbnb, where they can be the only one there and be away from other guests or staff? And they're just looking for something different.
Rogers: In certain markets, that is going to be the case. I think early on in the pandemic people had more concerns, greater concerns about being around other people. But as a society, I think we’re moving past that people understand how to go about their daily business and, and be safe and be healthy. And so I think we're moving beyond that. There's no question about it, alternative accommodations play a role in the entire landscape of what people do for travel. But most people still stay in a hotel and hotels are still rated as safer and cleaner than just about any other environment. And we created a program called Safe Stay that was directed specifically at making sure during the pandemic that all hotels were meeting at least minimum standards. And many hotels, of course go above and beyond that. And it has been an incredible success. And we continue to promote the fact that if you go to a hotel, it's going to be safe, it's going to be clean, and best of all, you're probably going to very much enjoy your time.
Levulis: Chip, was there anything else from the report or that your eyes are on for 2022 that you'd like to mention that we haven't touched on yet?
Rogers: Yeah, I would just mention that report indicates that by the end of 2022, that room revenue will be back to almost 2019 levels. What has changed, of course is the non-room revenue, which sometimes can make up 30 to 40% of a hotel's overall revenue stream. That revenue continues to struggle because of a lack of conferences and conventions as they roll back in. And a business traveler will typically stay and eat and spend more money at a hotel than a leisure traveler will. The leisure traveler likes to go out and enjoy the city, which we certainly support that, but it does cut into the hotel revenue. And so while we look to 2022 to be a major step forward in the recovery, we're not going to be back to 2019 levels until some point in 2023.