To kick off the year, HVS and The Lodging Conference took the “View from the Top" panel online with a webinar focusing on hospitality insights and strategies for 2021. Leaders from a range of hospitality companies gathered to look back over lessons learned from 2020 and to discuss how they can hang on until travel makes a full comeback.
Moderator Chip Rogers, president and CEO of the American Hotel & Lodging Association, began the webinar with a statement of hope for recovery: “We are entering into a new year and with it, a lot of new promise of things that could be much better than last year,” he said. “Against this backdrop of probably the most difficult year that our industry has ever faced [and] one of the most difficult years that humankind has ever faced that we now move into a new year full of promise [and] opportunities that we see ahead of us, especially with with vaccine distribution and thoughts of better days ahead.”
Forecasts for 2021 and Beyond
Rod Clough, president, Americas at HVS, shared updates on the company’s forecasts for 2021 and beyond. The company expects an 11.5 point increase in occupancy, the majority of which probably will show up in late summer and fall. 2022 should bring a 7.5 point increase, mostly in the early months of the year. “And then we're really back, occupancy-wise, in 2023,” he said.
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HVS expects rate to continue “lagging a bit” for some time. “We see about a $6 gain this year, coming out of the pandemic,” Clough said, suggesting discounts could lure guests back as vaccines make travel safer again. Group rates, meanwhile, probably will not start to return until 2022 or 2023, with an expected $8 increase in 2023 followed then by a $6 increase in 2024—ultimately exceeding 2019’s rates, he noted. “I see The Lodging Conference [scheduled for September in Phoenix] selling out,” he added. “You may want to register early. People are anxious to meet. What this has taught us is that we are a society that likes to meet in person. I think we're all sick of the Zoom meetings. Surveys are showing that meetings businesses is expected to come back, and may take a couple years, but it will come back strong.”
Occupancy and ADR for economy hotels have been the least affected of all segments, Clough noted, while luxury ADR is not declining as much as the company had expected. “Once that occupancy comes back, because that rate hasn't been devastated and they're holding that rate, there might be an upside point to look at for luxury recovery.”
HVS is not seeing a lot of transaction activity while the pandemic drags on. “The [Paycheck Protection Program] funding that's come out and relaxed forbearance rules are really delaying foreclosures,” Clough noted. “Once this market really starts returning [in] summer, fall, it may negate the need for foreclosure at all.” If a transaction is going to occur in this kind of market, he noted, sellers may have to take a 20 or 25 percent discount from what they could have gotten in 2019. New construction, meanwhile, may be delayed due to “super high increases in construction costs,” but Clough still sees “a lot of folks interested in buying hotels—just not enough sellers willing to make those price cuts.”
Leaders Look Ahead
With those numbers in mind, the other industry leaders began discussing their own concerns. Dave Johnson, executive chairman of Aimbridge Hospitality, suggested 2021 would be a transition year for many operators, depending on asset classes. “Your urban business, obviously, is going to trail the recovery,” he said. “I'm probably one of the most bullish on 2022 and beyond.”
Biran Patel, 2020-2021 chairman of AAHOA, said the association has been reaching out to the upcoming Biden administration and working to educate lawmakers on both sides of the aisle about what the hospitality industry needs. “I feel somewhat optimistic that even though the new administration is not in the hotel industry, they are aware of our industry,” he said. “We’re in their ears on a daily basis with our government affairs team. We've had a town hall with their team to educate them on our initiatives as an industry.” From a tax perspective, he cautioned, some owners may take “somewhat of a hit,” but he expects the incoming administration to consider a wide range of angles.
“Another thing that worries me is the return of corporate travelers,” Patel added. “Hopefully that trend of online meetings is not somewhat permanent.”
Justin Knight, CEO of Apple Hospitality REIT, agreed that group business will make a significant difference in recovery, but acknowledged that this recovery likely will be delayed. Hoteliers with business-focused urban hotels may well recover after hotels in leisure markets, he said, anticipating that these leisure hotels will do “incredibly well” over the summer. “What we've seen on the leisure side is incredibly positive, and I think the conversations that we're having with our business accounts are positive as well. We just need the vaccine and we need some protection for employers so that we can really free up that demand and get back occupancy levels that can support our hotels in our industry.”
Lessons Learned
Throughout the pandemic, Knight said, the team at Apple has sought new ways to manage margins at their hotels. “We've started from scratch, as have a lot of other ownership and management groups, looking at every aspect of our business, looking at how people perform various tasks at the hotel level and really questioning what are the things that we offer that have the greatest value to our guests?” he said. The short-term result has been a “significant modification” of the way the company runs its business, and while some of that has been dictated by the environment, Knight also has learned some lessons in that process that he expects will help Apple operate better as it begins to gain back occupancy and rate. “That bodes well for the future of our industry, from a profitability standpoint, and really from an attractiveness to our guests,” he added.
Staying afloat through 2020 meant moving to a zero-based budget model, said Heather McCrory, CEO of North & Central America at Accor. “We put it through the filter of people, process and product,” she said. The company was cautious to not cut “too close to the bone,” but sought to make sure they could still deliver on service. “It was an interesting process because ... we thought we were doing a great job, we thought we had done everything you could do in the run up 10 years to it, but we've found that we can do things differently and get the same results—and sometimes better results.” The company has been “digging in” to its DNA to find new ways of delivering necessary margins to the owners—“and frankly, these days help them just get through this period of time without compromising the guest experience,” she added.
Wyndham Hotels & Resorts has been very flexible with hotel owners to help them survive the crisis, said the company’s president and CEO, Geoff Balloti. “We know we need to continue along that path into 2022 in terms of helping them recover and return to the profitability they enjoyed pre-COVID,” he said. However, that flexibility cannot translate into reduced service. “We've seen our service scores, brand by brand, either hold or improve,” he said. “The one thing we know that is necessary are the team members out there in the field that support the small business owners and franchisees every day from a sales or marketing or revenue-management standpoint, and we show them as much flexibility as we possibly can.”