PwC report predicts rebound in H2 2021

The November edition of PwC’s "U.S. Hospitality Directions" found a range of factors are impacting lodging's recovery in the country. 

In the May edition, PwC had assumed the then-popular view that the daily number of new COVID-19 cases in the U.S. peaked in late April. Today, the daily number is more than four times that level, and the continued spikes have significantly impacted the recovery timeline. 

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As such, PwC currently expects annual occupancy for U.S. hotels this year to drop to 44 percent, and average daily room rates to drop 21 percent, with resultant revenue per available room declining 47 percent from last year. RevPAR in 2020 is expected to fall to a level not seen since 1996.

Driving Recovery

Recovery has been decidedly uneven, the report found, with destinations reliant on business, group and international demand suffering the most. Continued uncertainty and flexible booking policies are resulting in the majority of guests booking within 24-48 hours of arrival, straining forecasting and staffing models.

Leisure travel to drive-to destinations was key to restarting the industry in Q2 of this year, but the rate of travel’s recovery “decelerated somewhat” after July 4, the report found, based on average hotel occupancies and Transportation Security Administration checkpoint statistics.

Perhaps more worrisome, recently published research found correlations between local spikes in COVID-19 case numbers and the reopening of hotels, restaurants and other businesses. “Detrimental findings like these, a probable surge in virus-related fatalities in the coming weeks, and individual well-publicized setbacks in the travel industry’s efforts to restart could further dampen both leisure and corporate lodging demand,” according to PwC. 

With these numbers in mind, the report stated, companies are now delaying the reopening of offices into mid-2021, with obvious negative repercussions for corporate air, hotel and event bookings. Amazon’s recently reported year-to-date savings of nearly $1 billion in travel-related expenses illustrate the severe impact on the sector. Even when work-from-home mandates are scaled back, web-based collaboration and conferencing technologies likely will stay. Their adoption, combined with companies’ growing fiscal and environmental accountability, implies that a share of corporate travel may not return, the report finds.

Because the fall and winter months likely will see lower occupancy than summer and lenders are expected to be less flexible, industry stakeholders fear a liquidity crisis and a surge in foreclosures, especially among noninstitutional hotel owners. As such, PwC echoes the sentiments from the American Hotel & Lodging Association, AAHOA and other industry associations in calling an additional stimulus package “urgently needed.” However, the report noted that disagreements between the House and Senate majorities may delay a bill until after the inauguration in January. 

The Upside

Investors’ commitment to the sector persists, but this commitment is contingent on achieving sustainable control of the virus. The announcement of potential vaccines  triggered “immediate and significant” price increases in the stock of hotel companies, lodging real estate investment trusts, airlines and other travel-related entities.

Throughout the crisis, hotel owners and operators have been versatile in finding alternate revenue sources and incremental operating efficiencies, according to the report, and the intention now is to bring the top line back to prepandemic levels while simultaneously maintaining those lower cost structures. To accomplish that goal, owners likely will lean more on brands for elastic standards, value-driven distribution and innovative fee structures.

In the meantime, the developing shift in public discourse from the risk of surface-based transmission to the effectiveness of face masks could improve the perception of safe hotel stays (and gradually reduce the need for visible, staff-intensive cleaning protocols), according to PwC.

In 2021, according to PwC, temporarily closed hotels will continue to reopen and demand growth will build as the economy continues to open back up after a vaccine becomes widely available (currently assumed in H2 2021). Occupancy and ADR likely will continue to decline year over year in the first quarter (because the first two months of the year were less affected by the pandemic), but then see a strong increase over an easy previous-year comp in the second through fourth quarters, resulting in a year-over-year RevPAR rebound of 19 percent.