STR kicked off the Hotel Data Conference: Global Edition with an international overview, during which Robin Rossmann, managing director of STR’s international business, examined how different regions are preparing for recovery and what they’ve learned from the downturn.
2020 was a “pretty diabolical year” for hoteliers, Rossmann said. Hotels that were able to remain open faced occupancies of between 30 to 50 percent. Factoring in temporary closures—some of which are ongoing—brings that number to a “staggeringly low” 18 percent in Central America to a high of 44 percent in China.
The situation is worse from a revenue per available room perspective, he continued, with total room inventory RevPAR down 40 to 50 percent "at best," and down 72 percent in Europe.
Region by Region
While the summer brought some relief for hotels in the Northern Hemisphere, waves of new COVID-19 cases caused performance to either plateau or decline. After China emerged from its initial outbreak in 2020, indexed occupancies reached 90 to 95 percent of 2019’s levels—but then dropped back down to 40 percent again. “The good news, though, is that we've headed into the year of the bull, [and] we're seeing that recovery start again,” Rossmann said. “Occupancies across Mainland China are now back up to 70 percent of 2019 levels.”
The second and third waves in Europe, meanwhile, have tempered the rebound the region enjoyed over the summer. “We're now back at the bottom of that mountain to climb,” Rossmann said, blaming the problems on different lockdowns in different regions and a strong reliance on international travel.
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In the United States, restrictions have been “a little bit more stable,” he said, with more flexibility at the state level: “And as a result, we haven't seen that decline in performance that we saw in Europe, even though there was a big spike in cases in the beginning of this year.” Instead, overall performance plateaued at around about 50 percent to 60 percent of 2019 levels. The performance across different states has been fundamentally different, he added. “It's interesting to look and see some of the top performers like Texas versus some of the bottom performers like New York and to think that that might be something to do with restrictions and political lines,” Rossmann said. In reality, the situation is more complex. “It's got more to do with the makeup of the hotels in those states—how many are in gateway cities versus how many are in regional markets and the attractiveness of these destinations for leisure demand, in particular, in the winter months.”
With international travel curtailed around the world, hotels learned to depend on domestic business. “When we look at the correlation of change in occupancy in 2020 versus the proportion of domestic demand and 2020, there is a very strong correlation,” Rossmann said. “The more domestic business that a country had, the better it did.” Rossmann expects this to be the case for 2021, “and maybe for some time to come. So focusing on domestic is going to remain incredibly important.”
In the U.S., 45 percent of hotels achieved positive net income in 2020, which Rossmann said demonstrates the resilience of the country’s hospitality industry and demonstrates why it is attracting investors. “Clearly, it's not great, but even in this terrible year that we have now, we still have 45 percent of hotels breaking even at a net income level.”
Globally, hotels that remained open throughout the lockdowns performed better in the long run than those that closed temporarily, often between 10 and 30 percentage points, Rossmann said. “And yes, there's some structural things around that,” he acknowledged. Location matters as does segment, with smaller hotels, extended-stay hotels and properties outside of city centers more able to adjust and faring better as a result. “But there is a fundamental truth in the importance of being there for your customers [and] building up that loyalty because the people that are out there traveling for business at the moment aren't going to want to switch around once they've found a property that they're happy to stay at,” he said.
Future Business
While hoteliers have traditionally been able to balance slow times with higher demand in busy seasons, this strategy may no longer work, Rossmann said: “Those hotels that start with more business on the books have ended up with higher occupancy In the end.”
Of course, securing that business is a challenge in its own right. Government restrictions remain the highest barrier to travel, he said: “That's good news, because we know that when they go away, that pent-up demand will come through.” Until then, he said, customers are reluctant to book if they believe they will risk losing money in the event of a cancellation. “Having those flexible cancellation policies [is] going to be key to securing that upfront business,” he said.
This year and next will be a rebound for leisure travel, with numbers reaching 2019’s levels by 2023. “I think personally it could be sooner,” Rossmann added. Business travel, meanwhile, will not return to those levels until 2025, and large-scale events that rely on international travel may still see decreased demand.
Overall, Rossmann sees reasons for hope, with demand poised to reach between 80 percent to more than 100 percent of 2019 levels by the fourth quarter of 2022. “Within seven quarters of today, it's going to feel pretty normal,” he said. “Demand is going to be pretty close back up to 2019 levels.”