In the list of words and phrases we may never want to hear again “unprecedented” and “the new normal” are in the top five. If it takes 21 days to establish a new habit, it seems 29 months should be enough to help us feel like our world is no longer “new,” and it obviously isn’t “normal.” As we work to keep up with the velocity of change, we have to ask: Where do we go from here?
Changes in Demand Mix Are Here to Stay
The overall travel outlook remains positive through the end of 2022 and into 2023. The industry has rebounded more quickly than initially anticipated, although the recovery has evolved differently than expected. With a significant increase in leisure travel, longer lengths of stay, and more shoulder night stays on Sunday and Thursday, the past reliance on higher-rated commercial transient and group business may be permanently altered. This shift in business mix has taken a toll on hotel operations, labor and supply shortages.
Guest paid average daily rate (ADR) first surpassed 2019 performance in July 2021 in nominal terms and has continued through the first half of 2022. This trend is expected to continue into 2023 and beyond. However, the impact of inflation has resulted in real ADR performance that’s flat or slightly below 2019 levels.
Keep a Focus on Commercial and Leisure Trends
In response to the critical need to monitor the return of commercial business by market and submarket, Kalibri Labs has identified the segments that comprise transient commercial demand. They include corporate, government, consortia and rack/BAR and loyalty member rates on weekdays.
The commercial group segment includes association, convention, corporate and government travelers. Segments that make up transient leisure demand are all discount programs (AAA/AARP, advance purchase, etc.), promotion/packages, weekend loyalty member rate and online travel agencies (OTAs).
Through June 2022, transient commercial contribution to U.S. guest paid revenue per available room (RevPAR) was $30.59. That’s down -4.3% from 2019 during the same time period. Transient leisure contribution was $45.69, up +9.6% from 2019 levels.
In the upscale chain market, contribution to guest paid RevPAR for transient commercial was $37.50, down -17.0% from 2019. However, transient leisure was $46.60, up significantly compared to 2019, by +10.0%. This positive trend toward heavier transient leisure business is common across all chain scales, and in all location types except large metropolitan/urban.
In the long term, we expect transient commercial will rebound a bit as travel resumes in a way that resembles pre-pandemic levels, especially for corporate travel. However, in the short- and mid-term, travelers will continue to blend their purposes, extending the current mix of business and strengthening guest paid ADR, especially in the transient leisure segments. This is especially true for major convention markets, where guests traveling for convention or conference related business are most likely to mix business and leisure travel. (Source: Expedia, Stratos Jets, ©2022).
A Permanent Shift in DOW?
Weekends (Friday and Saturday) and shoulder days (Thursday and Sunday) continue to lead the recovery, with each of these periods exceeding contribution to guest paid revPAR versus 2019. In Q2 2022, weekday guest paid revPAR contribution inched up to meet 2019 performance. However, through the summer and remainder of 2022, it’s expected to fall short compared to weekends and shoulder nights.
The peaks and valleys for contribution by weekpart follow typical seasonality. There is no cause for concern as we approach the end of the year.
Emerging Markets
In addition to a likely permanent shift in business mix and day of week pattern, another trend that’s been hard to ignore over the last several months are surprises in emerging markets.
In June 2022, Gainesville, Fla., and Augusta, Ga., jumped into the top 10 markets for transient leisure, from their prior positions of 281st and 60th, respectively.
Unexpectedly high performing transient commercial markets include Salina, Kan., Niagara Falls, NY, and Sandusky, Ohio. All leapt into the Top 10 from prior positions of 20th or lower.
Tracking performance by chain scale and market by location type is important as we look ahead to 2023 and beyond. Both will continue to play a key role in performance recovery.
What’s Next?
As the industry plans for the remainder of this year, 2023 and beyond, it will be imperative to keep factors such as costs, control (over channel and rate category mix) and competition top of mind. Labor will be prioritized as well, with guests shifting back toward expectations of daily room cleaning.
One interesting trend that has emerged since the start of the pandemic is a relatively small extension in the average length of stay – from roughly 1.9 nights to 2.0 nights. Early signs indicate that a mere tenth of an increase in average length of stay equals 44,000 check-ins across all U.S. hotels. A significant decrease in the number of check-ins and subsequent increase in stayovers will play a role in how hotels manage staffing and wage decisions.
We can’t ignore the material changes the U.S. hotel industry has experienced over the last almost 36 months as they relate to business mix, day of week patterns and length of stay. Commercial strategy teams must keep them in mind as they plan for the future.
