COVID-19 has taken its toll around the world. However, few industries have been hit harder than the US hotel industry. The hospitality industry in the United States has also been slow to recover, lost an incredible number of jobs and continues to face depressed room rates.
The impact of COVID-19 on the US hotel industry
The American hotel industry is vast and varied, even if it remains well saturated by hotel brands. That being said, there are many participants in the industry including global brands, regional chains, ownership groups and independent hotels. Groups that are part of the industry but do not actually own hotels include hotel management companies, distribution channels and service providers.
The composition of hotel room revenue in the United States is also diverse. In total, 27% were from independent hotels in 2019, 6% from economy rooms, 41% from high-end / mid-range and high-end rooms and 26% from luxury and high-end rooms.
COVID-19 has affected both occupancy levels and room rates in the US hotel market, regardless of room type or property. As of spring 2021, occupancy rates were only 65% of what they were in 2019. Room rates have also been affected similarly across all property types. This is good news because compared to the same period in 2020, occupancy levels and room rates were significantly lower.
Finally, market capitalization also improved for the US hotel industry as a whole, with most brands outperforming REITs and conventional markets except the Dow Jones Industrial Average.
Where will the recovery go next in the United States?
The two metrics to watch out for here are occupancy levels and prices. As the world begins to open up again with higher immunization levels and better case management, both will continue to rise. Indeed, statistics show that the second half of 2021 and into 2022 will be marked by a trend dubbed the “journey of revenge” during which Americans are eager to get out and start living their lives again as usual, and don’t want to break reservations. In fact, some major hotel chains are forecasting travel levels to exceed the 2019 peak by around 10%.
The most visible force driving this seismic shift in the US hospitality industry is leisure travel. Business travel remains present but down significantly as companies continue to try to protect employees from dangerous variants. Still, there are positive indicators in other travel segments beyond leisure.
That being said, experts predict that it will be until 2023 or 2024 for revenue per available room (RevPAR) to return to 2019 levels. Off-chain hotels and small hotel chains can expect a faster recovery, however. of RevPAR. Luxury and high-end properties can expect the longest timeframe for full recovery, likely not reaching full recovery until early 2024.
Budget hotels appear poised for the fastest revPAR recovery and are expected to achieve it by mid-2022. Upscale, mid-range and mid-range chains will follow off-chain hotel recovery rates closely, although they are expected to lag somewhat behind.
You can also expect it to affect hotel construction trends. The US hotel industry as a whole is seeing stable or slightly lower construction rates for all property types in major cities like Los Angeles, New York, Chicago, San Francisco, Miami and Dallas.
Leisure travel is set to make cities the stars once again
In 2020, cities in the United States saw a dramatic drop in travel as people were less willing to expose themselves to the increased risk posed by overcrowding and higher infection concentrations. In 2021 and until 2022, this trend is reversed. In fact, leisure travel is once again turning American cities into travel stars.
But which cities should benefit the most from this trend? And which ones will be stronger in domestic travel versus pleasure travel?
The most lucrative destinations in the United States are expected to be New York, Miami, Los Angeles, San Francisco, Dallas, and Chicago. However, each of these cities will be stronger in recreation than in domestic travel, some significantly.
For example, New York is expected to experience an 80% share of leisure spending, but only a 51% domestic share. Miami is even more striking, with 82% for recreation and 34% for domestics. Los Angeles is a tighter race, with 79% leisure and 51% domestic. Dallas might be the closest of all, with 80% recreation and 71% domestic.
What can hotels do to plan a recovery strategy?
While the US hotel industry is recovering, this recovery is not uniform across all hotels. In addition, small hotels have access to fewer resources than regional and global brands and are more affected by market changes. So what can homeowners do to take an active part in their own recovery?
Re-prioritizing Marketing Spending – One of the most important things for small hotel owners to do is re-prioritizing their marketing spending. COVID-19 hit the reset button on audience segments, and there’s a good chance that in 2021, 2022, 2023, and 2024 you will see a very different audience than before 2020.
For hotel owners, it’s time to dig deeper into the process of determining which emerging audience segments to target with your marketing – where are these emerging pockets of demand? What are the alternative locations? For many, the local audience is the first to target, especially in the entertainment industry as Americans slowly begin to come out of lockdown.
Evaluate Your Technology – Now is the time to evaluate the technology partners you are working with. Many small hotel owners ditched their technology partners at the start of the pandemic. Before integrating these same partners, it is important to answer a few crucial questions, such as:
- Have they made the changes necessary to deal with the lingering effects of COVID-19 on the behavior, expectations and demands of travelers?
- Do they offer contactless / contactless solutions that help improve customer / staff health and safety?
- Do they allow you to process mobile / remote payments for guests?
- Do they facilitate remote check-in and check-out so that guests can go straight to their room or leave at the end of their stay without having to queue at reception?
Plans for Virus Spikes – There is a very good chance that COVID-19 will be with us for a long time, and that we will continue to face variants of varying severity levels. Delta and Mu are just two examples. Each new variant poses a unique threat level and it’s important that your property has a plan in place to deal with spikes and travel warning flags. This is especially important if your property relies on overseas leisure travelers or long-distance domestic travel.
Events and Gatherings – For properties that host conventions and events, what plans will you have in place to protect attendees? Are you ready to consider CAPEX investments that allow you to run virtual events so that the property can still host them but guests can attend online? Can you modify your current CAPEX plans to accommodate this need?
The future of the hospitality industry in the United States
There is no doubt that the US hotel industry will recover. Current trends in the US hotel industry are all on the rise and forecasts indicate that this will continue through 2022. However, this recovery will not be uniform and there will be obstacles along the way. It is important that small hotels have the right technology partners and the right strategies in place to consolidate their success.
Hotelogix Editorial Office
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