In a year full of abnormality, 2021 ended on a more settled note.
The global hotel industry’s climb back to profitability has not been easy, but it trudged back and, despite a dearth lack of corporate and group travel, ended 2021 almost back to 2019 levels—the recognized baseline of recovery.
Last year was an indication that travel is not definitionally discretionary. Despite a pandemic, the willingness to still “get out there” was fundamental to life. Consider that throughout the pandemic, transient volume mix remained buoyant, succoring hotels that lost much or all of their business from other segments.
Though December 2021 profit remained lower than in December 2019, the whole of the fourth quarter appeared more in line with years past, which is to say up in October and softer to end the year. Normal.
All regions dealt with the emergence of the Omicron strain and the realization that COVID was destined to turn from pandemic to endemic. December hotel profitability in the U.S., where Omicron sprouted toward the end of November, was not totally derailed and was, in fact, higher than November and closer to its December 2019 comp. GOPPAR hit $58.59, which was 12.5% off of the December 2019 level. GOPPAR for full-year 2021 was still 53% lower than full-year 2019, but (not a surprise) 520% higher than full-year 2020.
The most eye-catching trend of 2021 helped spur profit growth. Average daily rate to close out the year was at its highest level since October 2018 and $20 higher on a nominal basis than at the same time in October 2019. It’s an indication that hoteliers stuck with rate throughout the year, having learned a valuable lesson from downturns of yore: discounting is not a smart revenue-management practice.
Much of the profit gains can be attributed not to a meteoric rise in revenue (TRevPAR in the U.S. in December was still some $30 off the December 2019 level), but to expense containment. Payroll cost on a PAR basis was $16 lower in December than the same month in 2019, but it’s ascended quite dramatically since the beginning of 2021 to close the year $38 higher. Though hoteliers have been steadfast that the expense structure has forever changed, those savings could potentially not be in labor, a hotel’s highest cost.
Europe Ending Restrictions
After a stronger summer, Europe profit performance retrenched in Q4, but like the U.S., the ebb was consistent with prior fourth quarters, which typically show a decline after October.
Unlike the U.S., the drop in profit was striking after a stronger summer. GOPPAR fell to €14 in December, which was €34 lower than at the same time in 2019.
This all comes as many European countries move to strike pandemic restrictions. Denmark as of February 1 became the first EU country to lift all COVID-19 restrictions despite a surge in Omicron.
And with about 66% of eligible Britons now boosted, the UK has done virtually the same.
The moves by Europe illustrate a migration toward accepting COVID and not battling against it.
From a labor standpoint, payroll expense rose during the summer months, but was flat throughout the fourth quarter. Total hotel other expenses followed the same pattern.
The Middle East was the one anomaly amongst global regions, ending 2021 on a sweet note, as Expo 2020 in Dubai helped fuel profit gains. GOPPAR was down to static through most of 2021, then soared to new heights beginning with October, which coincided with the opening of Expo 2020, which runs through March 2022.
At $97.42, December 2021 GOPPAR in the Middle East was its highest recorded level since March 2018. Large increases in both ADR and occupancy helped propel total revenue at Middle East hotels, and ultimate bottom-line success was cushioned by flattish expense growth, including payroll, which only jumped 32% since the start of the year, much lower than other global regions.
Meanwhile, China saw a large dip in GOPPAR from October to November, before recovering somewhat to end the year at $18.41. After a strong end to 2020, China’s 2021 performance was choppy. In fact, it’s full-year 2021 GOPPAR of $22.59 was only 32% higher than the previous year, bucking the global trend, which saw profit gains over 2020 sometimes in triple-digit percentages.
China went into drastic lockdown around August after a surge in COVID cases.
Southeastern Asia fared better, with GOPPAR jumping to $16.62 in Q4, 658% higher than in Q4 2020. Payroll was up around $13 since July, which in part was fueled by a jump in occupancy, up 24 percentage points over the same period.