Gauging the global hotel industry’s recovery is a lot like poker: you play the hand you’re dealt as best you can and you never know what the next one will bring.
Just when we thought we might be out of the woods, an uptick in new cases, the Delta variant and fervent discussion over the vaccinated and unvaccinated have conspired, resulting in the return of masks in some jurisdictions and worry around the globe that this pandemic has still a ways to go.
I attended the Americas Lodging Investment Summit (ALIS), in Los Angeles, last week, and—though optimism and rosiness tend to permeate industry conferences—in private, attendees expressed concern that the recovery was still slow and muddied.
From labor shortages to lack of corporate and group demand, the hotel industry’s true recovery is a wait-and-see game—a game of poker dependent on the luck of the next hand.
Waiting on Corporate's Return
The first half of 2021 was marked by nominal improvement, particularly on the expense side of the ledger, but revenue is still off pre-pandemic-year periods and, by most estimates, still has a ways to go until it matches or exceeds levels. Two of the primary culprits are the dearth of corporate and group demand, which account for a high proceed of hotels’ overall revenue, especially for properties in gateway, convention markets.
Consider the U.S., where in H1 2021, transient revenue accounted for 80.4% of total revenue, compared to 56.8% in H1 2019. Meanwhile, group rooms revenue was 15% of total revenue in H1 2021, compared to 40% in H1 2019. The distinction is clear: the revenue mix was much more equitable in 2019, and helped explain total revenue of $100 in H1 2021 on a PAR basis, compared to $265 in H1 2019.
In Europe, the breakdown was similar: transient revenue in H1 2021 was markedly higher than H1 2019 and group revenue was lower. Expectations are that this ratio will remain similar until corporate travel confidence escalates.
TRevPAR in Europe in H1 2021 was €37.52 versus €157.53 in H1 2019.
A Loss for Labor
With travel demand tepidly coming back, worries over labor shortages to service guests and operate properties optimally are becoming all too frequent. In some instances, restaurants are having to shut down entire sections because they don’t have enough servers to accommodate diners, resulting in lost revenue.
“I've never used a staffing agency in the past as much as I have in the last four months,” Warren Fields, CEO of Pyramid Hotel Group, said during an ALIS panel session.
For H1 2021 v. H1 2019, total payroll on a PAR basis broke down this way by region:
- Europe: €19.43 v. €50.64
- U.S.: $36.56 v. $91.84
- Asia: $33.84 v. $54.25
- Middle East: $35.77 v. $68.56
Though the cost for labor may be cheaper, it’s only because there are less workers. On a PAR basis, housekeeping cost in the U.S. is down almost $6 in H1 2021 v. H1 2019, from $10.34 to $4.41. Meanwhile, a housekeeping shortage has meant that many hotels have done away with daily housekeeping, unless requested, a move that hotel companies like Hilton have made standard in the U.S.
The interplay between revenue and expense has had a profound impact on profit. Though most expense lines have pulled back in both 2020 and 2021 compared to 2019, they have come against a massive depletion in overall revenue.
For H1 2021 v. H1 2019, gross operating profit per available room (GOPPAR) broke down this way by region:
- Europe: €-2.55 v. €53.70
- U.S.: $26.79 v. $98.90
- Asia: $17.59 v. $58.33
- Middle East: $29.16 v. $67.03
They say that the best predictor of the future is the past. The hotel industry hopes that the next six months bucks the trend.