The big beasts of the hotel world are increasingly confident about the return of the business traveller, and of group bookings. And, as employers finesse a return to the office – or not – they shared their views on how this is impacting hospitality, during recent quarterly results updates.
There is also increasing clarity on how operational changes, such as decreased room cleaning, are likely to play out for all operators.
Second quarter results were reported against a backdrop of improving month on month performance in most markets, led by recovery in the US and China.
“The pent-up demand for travel we’ve been anticipating is happening,” said Hilton CEO Chris Nassetta. “We are seeing significant sequential improvement in every major region.” As has been the case so far as the pandemic effect recedes, leisure has bounced back strong, with the US in particular leading: “US leisure demand exceeded prior peak levels, with rates at 90% of prior peaks. This positive momentum continued into July with systemwide and US leisure room nights and rate exceeding 2019 levels.”
Hilton declared a net income of USD128m on revenues of USD1.33bn, with cashflow improving to the point where the company repaid its revolving debt facility during the quarter. Adjusted net income at Marriott was USD260m, against a net loss of USD184m for the equivalent 2020 quarter.
But more importantly, business travel is showing positive signs of return. At Hilton, Nassetta reported: “We saw improving results in small and medium-sized businesses and positive momentum across larger accounts. In June, business transient room night demand was 70% of 2019 levels with rate over 80% of 2019 levels. We continue to see progress in July, with similar room night demand and rates at 90% of 2019 levels.”
“Group performance in the quarter also improved sequentially driven primarily by social groups, given seasonally higher leisure demand. Overall, group demand increased nearly 20 percentage points sequentially from the first quarter, ending June at more than half of 2019 levels. Additionally, group bookings for next year are at rates above 2019 peaks.”
At Marriott, CEO Tony Capuano declared: “We expect to see a step-up in business travel, post Labor Day.” He said group bookings were currently 29% off July 2019 levels, with the day rate for group bookings roughly flat, and “ADR pricing power that we are seeing in group for ‘22 and beyond is very encouraging.”
Capuano also said there is a new phenomenon that Marriott is now spotting – the blended trip, that combines leisure with an overstay including work days. “This blending of trip purpose continues to be a real and measurable phenomenon and we think it’s good for our business, and we think it will continue well beyond the end of the pandemic.”
Geoff Ballotti, CEO of Wyndham, has also seen a change: “We believe new consumer travel patterns could disrupt the traditional revenue management models that we have historically seen Sunday and Monday as the lowest demand nights. In fact, this is exactly what we’re experiencing right now with Sunday and Monday occupancy having picked up 10 points of growth in Q2 versus Q1 as compared to 2019.”
Capuano added: “We are optimistic about the return of business travel – we talk to about 700 corporate travel managers every month and we are hearing anecdotally from our customers, particularly those that are in customer service businesses, law firms, accounting, consulting firms, that it is critical to their business that they be on the road and in person with their customers. If anything going forward I think it may be more difficult to determine precisely, looking at a guest walking through the lobby, exactly what their trip purpose is. I do think you’ll see a lengthening of stay as a result of this blending of trip purposes, and in fact, that length of stay is measurable and we continue to see that through the second quarter.”
And Host’s CEO Jim Risoleo noted the disconnect between returning to the office, and returning to business travel: “A lot of the offices they haven’t opened yet, but folks are actually traveling on business already, whether it’s business travel, or attending conferences. And that’s true of a lot of the financial services companies out there.”
“We expect that business travel momentum to continue,” he added. “The other thing I’ll point out is a lot of these large accounts, they don’t need the high-level approval anymore from their department head or their CEO to travel – that has been lifted. So travel has become much easier for a lot of these top accounts and we are certainly seeing that in the numbers as well. And a lot of these have not actually opened up their offices.”
Having cut costs by, for one thing, reducing the expected daily room cleaning rota, the brands are now working out whether this will become a permanent feature of a future hotel stay. Wyndham CEO Ballotti commented: “We are providing room cleans on a request basis, which has been well received obviously by franchisees, but also by guests right now in terms of them not necessarily wanting folks in. As a standard we’re providing cleans on longer stays on every third day.”
At Marriott, the decision is more nuanced, said Capuano: “Whether it’s housekeeping protocols, f&b service, we’ll continue to evaluate and evolve those service levels by market and by quality tier around the world.”
HA Perspective [by Chris Bown]: All hail the return of normal business and group bookings. The USA seems to be leading the return to a new normal that’s starting to look like the old normal.
But not so fast. Already, event organisers in America are being spooked by a rise in covid-19 cases. The rescheduled New Orleans jazz festival has been cancelled for a second year, while the organisers of the New York International Auto Show have just pulled the event.
Let’s hope that’s just a temporary blip. The reported signs from Marriott and Hilton seem to suggest businesses – in the US at least – are returning to meetings and events, and to face to face meetings.
The shift towards this blended trip also promises a potential benefit to hotels. Plus, as they are no longer travelling on the high priced airline red eye, hopefully those guests will have more to spend during their hotel stays – win,win.
Additional comment [by Andrew Sangster]: Despite all the hype about the so-called Delta variant of the Covid virus, recovery is coming. It has been slowed but not derailed. Perhaps the best analogy is speed restrictions due to a dodgy stretch of track.
An intriguing feature of the downturn was the lack of impairment to values. At Pandox’s results presentation, it said the cumulative change on values during the period of the pandemic was just 5.1%. The company’s acting CEO, Liia Nou, somewhat pointedly said that external valuations were worse than Pandox’s own internal valuations. What we see of transactions, Nou seems to be right.
“Banks are accommodating, liquidity is strong and transactions relevant to Pandox are supporting our property valuation,” she told listeners on the webcast. “The pandemic has negative short-term effects on the cashflows in our hotel properties but we do not expect long term yields to be affected in the same way.”
The company went on to talk about how hotels in bigger cities that are more dependent on international demand are seeing a slower recovery. This is hardly surprising given the difficulties of international travel.
The question arises with this demand, and that for business and group travel, whether there has been a shift in long-term patterns as a result of the impact of restrictions imposed during the pandemic.
There is no clear answer to this yet. But it looks increasingly like if there is any impairment, it will be modest. My own view, one that we have articulated in Hotel Analyst for many months, is that the restrictions imposed during the pandemic have not fundamentally altered the drivers of travel demand.
An interesting contrast appears between Sweden and Germany, two countries at the opposing poles in terms of their attitudes to restrictions, with the Germans being among the toughest in Europe and the Swedes the most liberal. If there is to be long-term damage, it might be expected to be most apparent in the German market.
In the UK, there has been among the strongest rebounds in demand. Pandox, which owns the Jurys Inn chain in the UK, said the country “indicates well the direct correlation between restrictions and demand, as well as the pent-up demand for travel and experiences”.
Pandox said it is seeing the same patterns everywhere: domestic leisure the main driver and then domestic business demand following. But this business demand is so far mainly smaller companies.
Big companies are preparing to start travelling again but there is a more cautious transition to white collar travel with September and October being the key months to observe any patterns. Pandox said that fewer trips but more hotel nights possible.
“We note that there is a strong economic recovery in most countries and corporate profitability is high which is positive for the corporate travel outlook in general,” said Anders Berg SVP head of communications and IR.
Beyond Europe, China and the US are seeing the strongest growth, as the global majors make clear in their results presentations for Q2. The Delta variant has caused a few wobbles but not enough to dash hopes.
In Europe, the UK appears to be leading the way. This week’s GDP numbers are certainly helping as they showed growth of 4.8% in Q2, the strongest within the G7 group of high-income countries.
The picture is flattering in that the UK counts GDP in a more sophisticated manner than most countries as it includes the output of things like education. This meant the UK’s apparent downturn was much worse than other countries with the flip meaning it is easier to have a stronger recovery.
The UK remains 4.4% below its peak level of GDP, reached in Q4 2019 but this is now expected by most forecasters to be exceeded by the end of this year. The recovery has, nonetheless, been at the upper end of most expectations.
The downturn has been prolonged and the impact of the pandemic restrictions will be felt beyond two years from their inception but the fabled V-shape recovery does indeed look to be happening, albeit looking more U-shaped than hoped for by some at the start of the crisis.
International travel is going to be the last to return. Trans-Atlantic routes are already showing signs of life but Asia Pacific looks more problematic. Zero Covid strategies are likely to make any international recovery here much slower, with China, Australia, South Korea and Taiwan all set to take a while to see this coming through.