The international hotel landscape has seen dramatic changes in the past year. Overall, demand is exceeding expectations and revenues in many regions are approaching or meeting pre-pandemic levels. At the same time, a recessionary climate, combined with labour and supply shortages, continue to present challenges in achieving a full recovery.
“It’s amazing what 12 months can bring,” says Adam Kramer, partner, National Alternative Delivery Model (ADM) Leader for Deloitte Canada in Toronto. “We were having a very different conversation a year ago than we are now.”
The biggest driver has been the opening of borders, he says. “We are seeing a corresponding positive development of removing restrictions and increased volumes. Occupancy, Average Daily Room (ADR) rate, and Revenue Per Available Room (RevPAR) are all trending in the direction we want to see them go, although it’s not universal.”
Of the three segments — leisure, corporate and meetings/groups — leisure has been leading the recovery, while group travel has been the last to recover. “It takes years to re-initiate big events. We’re not anticipating a full recovery in that segment before 2024 or even 2025, although it will differ by region,” says Charlie Shi, director, HVS, Toronto.
Corporate travel is not expected to reach pre- COVID numbers, says Shi. “There is a portion of corporate transient travellers who are enjoying the benefits of not having to travel for in-person meetings. We expect that 10 to 20 per cent of corporate travel across the globe will not return.”
However, those who are travelling on business are extending their stays, creating a new category, he adds. “Bleisure travel is now replacing corporate travel.”
How the recovery is playing out
Lower business travel numbers are being counter-balanced by a surprisingly strong resurgence in leisure travel. “When the borders were closed, staycation travelling became a dominant force,” says Shi. “The resort sector in Canada, for example, was the leading market performer even over some luxury assets in the downtown core. Some hotels have surpassed 2019 RevPAR levels; some are at 80 to 90 per cent.”
Nations with the least restrictions have benefited the most over the past year, adds Shi. “The U.S. was way ahead in terms of recovery. Their rates for 2021 in a lot of leisure destinations were higher than pre-pandemic levels, particularly in Florida, California, and several ski destinations in the mid-West. China and other parts of Asia, on the other hand, have been among the slowest to recover because of their COVID restrictions.”
Europe has been choppier in its recovery, where recovery lags behind North America. “Europe is not as penetrated with global brands that we see in other regions,” says Kramer. “It’s more fragmented and more hotels are family owned or parts of smaller chains.”
The state of the pipeline
Major brands are looking closely at the all-inclusive resorts sector, says Shi. “As people are dealing with inflation, customers like to book all-inclusive as there are no surprises or hidden costs. Marriott and Choice’s focus this year and next is expanding into that sector.”
“There’s a growing push to extended stay,” confirms Kramer. “Hotel brands and private equity are really invested in that space. They are trying to play as many strategies as they can and execute them well, knowing the uncertainty of the environment.”
However, Kramer says hotels are facing the same pressures other industries are. “There are looming questions around the recession, a rising interest-rate environment, supply-chain issues that are still unfortunately there, and labour constraints. There’s not
a lot of confidence around new builds.”
According to STR, hotel pipeline activity is down globally, reporting year-over-year declines in current construction projects at the end of the second quarter 2022. Europe showed a 12.6-per- cent decline, Middle East and Africa a 6.2-per-cent decline, and the Americas a 16.9-per-cent decline. The exception was Asia Pacific with a 2.1-per-cent increase, led by China and Vietnam.
“IHG made a statement around a push into Thailand, and Accor and Wyndham are also pushing aggressively into Asia,” says Kramer. “We’re also seeing big luxury brands starting to make stakes in sun destinations, home sharing and branded residences, such as Taj Hotels in India and Banyan Tree Hotels in the Philippines.”
Fairmont is focused on expansion into several Asian and Middle-East markets, including Dubai, Morocco, Japan, and Vietnam, says Mansi Vagt, global brands leader and vice-president, Fairmont. “Coming out of the pandemic, the Middle-East market is definitely more bullish. Asia-Pacific, however, is a bit more challenging, including China. Their reality with the pandemic was very different than in the western and Middle-Eastern parts of the world.”
A bumpy road forward
The fall and winter will be the true test for the hotel industry, says Shi. “Leisure demand will be fading out. Supposedly, meetings and groups will help with fall demand, but it is still recovering very, very slowly. The question is can they hold onto their rates?”
The biggest friction point for hotels moving forward will continue to be talent shortages. “The industry took two steps forward and one back as staffing has not caught up,” says Kramer. “With massive pent-up demand, the question is now how the industry can accommodate the volume as they ramp up hiring.”
The industry is in a different place than it was before the pandemic, says Vagt. “The world has changed. No one should expect that everything will get to what I was before March 2020. We need time to digest that and approach the business in light of the shifting focus on hybrid work, employment, wellness, and mindful travel, among others. It’s so much more than financials. It’s about coming back better than we were before and understanding the new world we are entering.”
By Denise Deveau
