August 11, 2022

Lagging Business Travel Will Impede Hotel Recovery

A new report from the American Hotel & Lodging Association and Kalibri Labs projects that…

Lagging Business Travel Will Impede Hotel Recovery

A new report from the American Hotel & Lodging Association and Kalibri Labs projects that US hotel business travel revenue will be 23% below pre-pandemic levels in 2022 and end the year down more than $20B compared to 2019.

Business travel—including corporate, group, government, and other commercial categories—is the US hotel industry’s largest source of revenue. During the past two years, the industry has lost an estimated $108 billion in business travel revenue.

“While leisure travel is expected to return to pre-pandemic levels this year, business travel will take significantly longer to recover,” the AHLA report said.

“While dwindling COVID-19 case counts and relaxed CDC guidelines are providing a sense of optimism for reigniting travel, this report underscores how tough it will be for many hotels and hotel employees to recover from years of lost revenue,” said Chip Rogers, president/CEO of AHLA.

The report said that large urban markets, with hotels that rely heavily on events and group meetings, will disproportionately have larger shortfalls in business travel revenue this year.

The report projected that San Francisco will have the largest shortfall by percentage in hotel business travel revenue this year, with a total that is expected to amount to 55 percent less than 2019, a deficit of $2.5 billion.

According to AHLA, three other urban metro markets will bring in less than half the hotel business travel revenue they notched in 2019: New York City (55.3% below 2019 revenue, a $2.5B deficit), Washington DC (54.4% below 2019 revenue, a $1.5B deficit) and San Jose (51.8% below 2019 revenue, a $634M deficit).

The projected lag puts a damper on a recent analysis conducted by the San Diego State University School of Hospitality & Tourism Management on behalf of AHLA which found that businesses and organizations that resume business travel have a competitive advantage over those that continue to rely on virtual meetings.

It remains to be seen whether the gloomy outlook for business travel will slow down renewed enthusiasm for the hotel sector displayed by investors since the beginning of the year.

First quarter sales of hotels exceeded an estimated $12.5 billion, the highest Q1 total since 2016, according to a report last week in the Wall Street Journal based on CoStar data.

WSJ said prices for hotel sales are surging as investors flush with cash are betting that hotels will have a faster recovery than the office sector. Hotel values increased by 18% in March compared to a year earlier, according to Real Capital Analytics.

The share of securitized mortgages for hotels that are delinquent has dropped from a pandemic high of nearly 25% in 1Q 2020 to about 7% during 1Q 2022, according to data compiled by Trepp.