NASHVILLE, Tennessee — Hotel demand from business travelers, which has been the slowest in the U.S. hotel industry’s recovery from the COVID-19 pandemic, will return to peak 2019 levels by the end of next year, CoStar’s director of hospitality market analytics said. Daryl Cronk projects.
During a data presentation at the 2022 Hotel Data Conference, Cronk said three factors are contributing to the slow recovery in business travel demand: companies’ work-from-home policies, executives reevaluating the value of business travel against teleconferencing technology and the broader economic downturn.
“The American Hotel and Lodging Association…estimates that hotel revenue from business travel will be about $20 billion lower this year than in 2019,” Cronk said. “No matter how strong the leisure recovery is that we hear about, no matter how well leisure continues to do, we can’t consider travel fully recovered when we’re leaving $20 billion on the table. We need this traveler to come back.”
There are signs the business travel recovery, while still slow, is gaining steam, he said.
“In a recent survey from the Global Business Travel Association … three things really stood out to me about business travel. One, the vast majority of American companies are traveling again. They’re back on the road, maybe not with the same frequency or volume as pre-pandemic, but businesses are traveling again,” he said.
“Second, COVID is no longer the most important factor in business travel decisions. Staffing challenges, and pricing or inflation are now considered more important factors than Covid when it comes to business travel decisions. And third, this year’s meetings will require a larger business travel budget than before the pandemic. Will share.”
Cronk said CoStar’s forecast that business-as-usual demand for hotels will recover by the end of 2023 is based on the belief that business executives will again recognize the value of face-to-face meetings with partners and customers. Also, as the U.S. economy grows, he said, businesses will hire more people who travel.
Business travel is almost certainly changing.
CoStar and its hospitality analytics firm have traditionally measured business travel demand by geography and day of the week.
“Most of the business travel is in an urban location … and then in the middle of the week, Monday through Wednesday, those are your traditional heavy business travel days,” Cronk said.
Year to date, the occupancy gap is the widest at pre-pandemic 2019 levels, both in urban locations and between weekdays.
“Hotels in urban locations are moving in the right direction, but still have the biggest shortages or gaps in 2019. We can drill deeper into urban destinations and look specifically at central business districts, and again, we see the same pattern. Any A sector that is heavily dependent on business travel is lagging behind in the overall recovery,” Cronk said.
“Weekend demand has basically fully recovered — and in fact, weekend demand in the fourth quarter of last year was above 2019 levels,” he said, adding that lower midweek hotel demand indicates business travelers are booking fewer rooms.
But another interesting day-of-data trend holds some hope for hotels that rely heavily on business travelers.
Traditional shoulder days — Sundays and Thursdays — “have recovered almost as quickly as the weekend, [and] Certainly they’ve recovered faster than the weekdays,” Cronk said.
Part of that shoulder-day demand is coming from growth in leisure travel that combines business and leisure.
The flexibility of remote work, which has also been cited as a headwind for business travel, is enabling some of those travelers to extend their weekends to three or four days, he said.
A change in company policies to allow remote work that requires employees to work from home may actually help business travel demand for hotels.
“Even if you don’t choose to commute to your office because of remote work opportunities, you may still choose to commute. So we’re seeing occupancy increase in those central business districts, even as office occupancy plateaus,” Cronk said.
Chase Oser, STR regional sales manager, said in a separate data presentation during the conference that hotel occupancy during some weeks in June, Sundays and Thursdays, actually matched Friday and Saturday occupancy.
“I think we’re going to continue to look at how we define the ‘new business traveler,'” Oser said. “We’re still seeing how it plays out. We’ve seen percentage shares on Sunday [of occupancy] Substantial growth in 2020, especially in the second quarter.
Some are also coming from business travel groups.
Cronk said TripBAM’s data shows corporate travel bookings “are still a third below 2019 levels … which group demand [for luxury and upper-upscale hotels] June 2019 was less than 5%, actually close to pre-pandemic levels.
The true test will come from hotel performance data in October, “once we get into the fall when leisure travel goes through the seasonal slump and we see what’s left and how much of a recovery it actually is in business travel,” he said.
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