Early in the pandemic, travel shut down and hotels and resorts took it on the chin. They largely couldn’t open, many people were scared to go anywhere, and businesses looked to teleconferencing.
Things have turned around since, according to a new report from Green Street. “U.S. resort hotels have enjoyed an unprecedented run of pricing power since mid-’21, with average daily rates (ADR), RevPAR, and hotel EBITDA well-above pre-Covid peaks in many leisure destinations, especially “drive-to” locations,” the firm wrote.
But the real boost has been to resort hotels rather than urban. For example, year-to-date revenue per available room (RevPAR) is up 19% over 2019 for resorts. For urban hotels, it’s down 11%.
Starting in 2017, there was a split in average daily rates, indexed to 2008 prices, between the two categories as well. That really took off as the pandemic settled in. Now the average daily rate in urban is 126 while for resorts it’s 162.
What has helped is consumer response to the pandemic. When people could start traveling again, they showed “surprisingly little price elasticity.” Hotel operators looked to increase per-night rates and help balance out other missing revenue. Business travel was far off and, as Klaus Kohlmayr, chief evangelist for hospitality industry revenue management company IDeaS, told GlobeSt.com last year, “about two-thirds of [hotel] revenue comes from some sort of business travel related segment.” That was a bit part to make up and it’s not returning to normal.
“Green Street estimates that business travel (more concentrated to urban markets) will suffer a 5-10% secular demand impact relative to its pre-Covid trend,” the firm wrote. However, RevPAR will, by the firm’s estimate, move back into rough line with pre-pandemic growth rate.
That said, “quickly normalizing travel patterns, worrying consumer sentiment, and macroeconomic storm clouds” raise questions about the near future and if leisure travel is due for a “course correction.”
As Green Street notes, leading indicators—capital markets performance, personal savings rates, consumer confidence, US dollar currency index, travel costs, and GDP outlook, offer a “concerning look.” That combined with consumer sentiment could “negatively impact leisure travel.”
“Further, an expanding menu of leisure options (e.g., cruises, international destinations) as Covid restrictions / concerns fade suggests that consumers may pay more heed to price going forward than has recently been the case,” the firm said.
In addition, Green Street expects business travel, more often found in urban markets, to see a 5% to 10% secular demand impact compared to pre-Covid.