The state of recovery: A tale of two outlooks

By Kristi White   

Today’s outlook on tomorrow’s travel is as varied as the hotelier considering their next steps in recovery. There’s the data that stems from sources such as STR, acknowledged by many in the industry as the standard for data intelligence and global benchmarking. But there is also market data and individual hotel performance to consider.

The extent of data available to the hospitality industry can be overwhelming. But data is information and, as such, should be used to inform decisions. However, if not used cautiously, it can limit our performance and potentially become a self-fulfilling prophecy.

For many hoteliers, that could be the case with the most recent STR forecast for the U.S. Theirs is an outlook that looks at the hotel industry as a whole. The other, your hotel’s, might be an entirely different outlook. STR might be correct for the U.S. in aggregate but it doesn’t mean an individual hotel can’t change the outlook and come out much rosier. To determine your outlook, it’s necessary to understand what the forecast is and how it may not be the outlook you need to look forward to.

The STR Outlook
STR recently hosted its annual Hotel Data Conference (HDC) in Nashville. As with each year, its experts announced a revised forecast for 2021 and 2022. Anyone expecting a significant lift based upon Q2 2021 performance was probably disappointed. There was a minor lift in occupancy forecast (54.7% vs. 53.3% in March). However, this was solely based on Q2 outperforming its forecast. STR remains somewhat bearish on the remainder of the year.

One place the forecast was more bullish was in terms of ADR. The ADR forecast for 2021 increased from $109.47 to $115.50. If you follow STR forecasts closely, you know it’s almost unheard of for the company to adjust rate this significantly in a single year. Again, this is on the strength of Q2 performance and the unprecedented growth the industry has experienced due to leisure demand.

All of this rounds out to a significant increase in RevPAR for the remainder of the year. The forecast shifted from $58.39 in March to $63.16. On the surface, this sounds like great news. However, despite the increases, STR remains cautious about the remainder of the year. While some of this makes sense (we simply don’t know what the delta variant will disrupt in the fall), for the average hotelier this is a bit of doom and gloom that doesn’t align with what they are seeing.

To better understand how STR’s numbers might be somewhat skewed, you must understand it is forecasting for the country as a whole. This includes forecasting for areas we know will recover last. Breaking those down to specifics, Boston, Chicago, New York City, Orlando, Seattle and Washington, DC are the largest group markets in the country.

These markets, along with Dallas, Phoenix, Los Angeles and Orange County, CA,  are responsible for 20% of the revenue declines in Q2 for the U.S. So, they hold significant sway over the overarching forecast for the country. Additionally, at the individual hotel level, the size of hotels in these markets is significantly larger (at 239 rooms) than the rest of the U.S.  (at 120 rooms.)

All of this insight combined indicates these markets are significantly more beholden to group than the rest of the U.S. That’s not saying group isn’t necessary for wholesale recovery of the industry. It simply means some markets can leverage leisure demand more effectively for short-term financial survival.

This was evident when speaking with hoteliers at HDC. Those in one of the top group markets or those in larger-than-average hotels were either comfortable with the revised lower forecast or of the mind they wouldn’t quite get there. But, those not in those markets or those closer in size to the average hotel, the picture was rosier.

Which brings us back to our “two outlooks.” The reality is, what the remainder of the year looks like is dependent on three things: where your hotel is located, the size of your hotel and, even more important, your team’s attitude.

Beyond the STR outlook: The location factor
According to STR, the hospitality industry lost $9.1 billion in group revenue in Q2 2021 relative to the same time frame in Q2 2019. Predominantly group hotels accounted for $3.7 billion of that and the top 10 group markets made up $1.8 billion of that.

Almost 20% of the lost group revenue is concentrated in 10 markets. If your hotel sits in one of those top 10 group markets (Atlanta, Boston, Chicago, Dallas, Los Angeles, Orange County, Orlando, Phoenix, San Diego, Washington, DC), your outlook may be closer to the STR forecast (possibly even lower).

For hotels not in those markets, or not group heavy, smaller groups are out there and they are booking. In fact, in July, the average corporate meeting ranged from 40-64 people (dependent on the region of the country). So, for these hotels, there is definitely an upside to layer in smaller group business.

However, there is another influence to consider. Leisure and business travel demand will be a factor in some of these markets. We’ve already seen leisure demand impact most of them. But Los Angeles, Orange County and San Diego have benefited the most.

This trend will continue although the primary focus of it will shift to the weekends as children return to school. However, don’t forget those empty-nesters and DINKS (Dual Income No Kids) who might still want to travel and are more flexible in their travel plans. Additionally, as temperatures come down this fall, Phoenix will likely pick up in the leisure demand area.

Regarding business travel, the levels of demand will most likely be tied directly to the propensity of offices to reopen in those areas. A great source of information to better understand this is Kastle Systems. It is safe to say those areas with the greatest propensity to return to the office will likely have greater business travel needs.

Location will play a factor in performance relative to the STR budget, but even if you are in one of the bigger group markets other factors may impact your trajectory.

Beyond the STR outlook: Hotel size matters
As mentioned, the average hotel in the U.S. has 120 rooms. The average hotel in the top group markets has 239 rooms. That’s an almost 100% increase in size. According to the STR data, smaller group hotels are performing better with RevPAR recovery at or above 100% since April. On the opposite side of the spectrum, larger group hotels are below 60% of RevPAR recovery.

This plays in line with the nature of smaller groups (regardless of the market segment). Smaller groups gravitate to smaller markets and smaller hotels. If your hotel falls into both of these categories, it is likely poised to perform vastly better than the STR forecast. Even if your hotel is in a larger market, if it is on the smaller side, there will likely be an upside.

Finally, there is one more factor that will truly determine your recovery trajectory.

Beyond the STR Outlook: Attitude makes or breaks
Hotels are understaffed, we all know it. However, those hotels who are back to the business of selling will be the truest winner despite size or location.

Just as our teams have been decimated, meeting planners within organizations have been decimated. As meetings return, chances are your teams won’t be dealing with meeting planners but, rather, people who are planning meetings. What does this mean for your hotel?

It means the people planning will need more hand holding than ever. They don’t have established relationships with your hotel and will need guidance. So, it’s more important than ever for your salespeople to establish relationships and get on the phone with their top accounts. If they don’t, someone else will and the top account will no longer be a top account.

Now is not the time to be afraid to sell. It is the time to be bold. Pick up the phone, make the call and engage customers in order to reestablish those relationships. Loyalty may not exist any longer, and it is imperative your teams are ahead of the curve in creating new loyalty. Taking a wait and see attitude to sales now will place your hotel at the bottom of the recovery heap.

Regardless of your outlook
Regardless of where you stand, recovery is coming. There will be 12 to 24 months of phenomenal recovery for our industry. The tricky part is when those 12 to 24 months will actualize for your hotel. If you are a smaller hotel (not in one of the top 10 group markets,) chances are your ticking clock will start pretty soon. If you are a larger hotel in a predominantly group market, your ticking clock may not have started just yet.

Forecasts are what they are, and STR is pretty good at them. But, ultimately, you control your own destiny. What your hotel does today will determine how you perform tomorrow. Use this forecast as a guide but then develop a game plan to outperform it.

Kristi White is VP of product management at Knowland. With two decades of experience in the hotel and revenue management side of the industry, she has advised hundreds of hotels worldwide on improving their business strategy, hotel performance and overall profitability.

This is a contributed piece to Hotel Business, authored by an industry professional. The thoughts expressed are the perspective of the bylined individual.

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