U.S. Hotels - 2022 Commentary

2022 Top-Line Metrics (percentage change from 2019)

• Occupancy: 62.7% (-4.9%)
• Average daily rate (ADR): US$148.83 (+13.6%)
• Revenue per available room (RevPAR): US$93.27 (+8.1%)

Key points from 2022:

• Overall, uneven & non-linear recovery was seen across the industry segments.
• Calendar shifts and weather-related events impacted demand and occupancy comparability.
• Group business is poised to contribute to overall market and industry KPIs in a meaningful way in 2023.
• Overall pipeline activity is down. December growth in-construction was the first seen since November 2020.

After consistent month-to-month improvement through April, the occupancy recovery index to 2019 showed more fluctuation.

Uneven recovery has been the case throughout the pandemic. Take 2020 and 2021, for example, when “false dawns” were dashed by new COVID variants. In 2022, however, the virus had minimal impact on performance once Omicron subsided and discussion around caseloads diminished. That meant that non-COVID factors were the reasons behind the variance in demand/occupancy recovery.

Some of that variance came through calendar shifts. Date-driven holidays (4th of July, Halloween) shifted days, while day-driven holidays (Memorial Day, Labor Day) shifted weeks between 2019 and 2022, leading to wild swings in weekly performance and mild shifts in monthly comparables.

The varying pace of segment recovery accounted for shifts as well. Leisure recovered faster than business and/or group travel, so the leisure-reliant months typically reported stronger indexes than business-based months.

Natural disasters and other weather-related events, transportation disruptions, and other events can wreak havoc on performance. As we climb closer to a full occupancy recovery, these very minor and sometimes meaningless factors lead to non-performance related ups and downs on the index.

When events make it difficult to look at an index, look at actual data or different time periods.

Average daily rate (ADR) was a standout again in 2022 with rates pacing 16%+ ahead of pre-pandemic levels. Indexed to 2019, ADR seems to have peaked, and that peak is relatively in line with inflation.

STR and Tourism Economics forecast ADR to increase modestly year over year in 2023. For some segments, ADR will be flat or potentially down year over year, while others continue to improve.

The lower end has the best opportunity to grow ADR in 2023, while the upper end has plateaued and started to moderate.

Beyond the classes, expect stronger rate growth in 2023 from the Top 25 Markets.

Groups

While in a much better spot today, groups were slow to return earlier in 2022 as there are more practicalities to planning a big event compared to a family beach vacation or a quick client meeting. While all three examples require some degree of confidence that COVID will not derail travel plans, it is only the first example that normally takes at least six months to plan.

Beginning in April 2022, groups started to return. Unlike business and even leisure, it was not a gradual rebuild, but an overnight phenomenon.

Among the Top 25 Markets, the markets most reliant on business & group travel remain at the bottom.

Many of the markets towards the bottom are group powerhouses, and it stands to reason that groups’ late start to the year held those markets at the bottom.

Pipeline

Rooms that packed into the planning phase over the past 24 months are pushing forward.

The overall pipeline is down, but growth has shifted into final planning and in-construction phases. December growth in construction was the first seen since November 2020. That does not mean that supply growth will be high this year – forecast is +1.2% in 2023 – but it does mean new rooms may have reached the bottom of the bell curve for the post-pandemic pipeline slowdown.

Profit & Loss 

Revenues and profits were recovered to 2019 levels because of the strong demand, higher rates, and increased revenues from other departments.

Labor costs were slower to reach 2019 comparables, mostly because of lower employment levels in the industry. Rising levels throughout the year were due to higher wages (influenced by inflation), more hours worked by current staff, and more wages being paid out to contract workers.

F&B revenues have still not recovered to 2019 levels, although some F&B departments have exceeded 2019 or are close to doing so. The one laggard is the catering & banquets department, as groups were slower at the beginning of the year and have been smaller in general with less F&B spend even upon return. 

Latest Weekly Insights

U.S. hotel industry occupancy bounced back in the week after the MLK holiday, reaching 56.3%. That level was up 6.8 percentage points (ppts) from a year ago and just 1.5ppts below the comparable week in 2019. Moreover, the week’s level was the eighth highest ever recorded for the last full week of January—the highest occupancy (58.4%) was posted in 2006. Read more here.