The cause and effect of slowing business travel
The cause and effect of slowing business travel
19 AUGUST 2019 8:50 AM

With geopolitical and macroeconomic issues causing some concern for large businesses, hotel executives speaking during second-quarter earnings calls noted a drop-off in business transient.

REPORT FROM THE U.S.—Global geopolitical issues apparently had businesses feeling anxious in the first half of 2019, and that impacted how much they were willing to spend on employee travel.

Various hotel executives—particularly with real estate investment trusts—spoke during second quarter earnings calls about a slowing of business transient.

James Risoleo, president and CEO, Host Hotels & Resorts
“Businesses were cautious in the quarter, likely driven by the global slowdown and the uncertainty surrounding the ongoing trade negotiations. Full-year, non-residential fixed investment, while still healthy, declined 40 basis points since the first quarter to 3.6%. We believe this led to a decline in business-transient demand, especially in major markets such as New York and San Francisco. All of these factors resulted in weaker results than we and the industry anticipated.

“Overall, as we look to the second half of the year and amid the growing uncertainty of a trade deal with China being concluded in the near-term, we do not see any near-term catalyst to induce business transient demand. As a result, we are revising our full-year guidance to reflect a slightly softer operating environment.”

Tom Baltimore, Jr., president and CEO, Park Hotels & Resorts
“On the transient side, revenues increased 1.1%, driven by a 4.6% increase in leisure demand, but offset by a 2.5% decline in business transient demand. Despite a relatively healthy economic backdrop, beginning in May, business transient occupancy started to decline, which we believe reflects some corporate uncertainty in light of the ongoing trade war with China. That said, we have not witnessed a material change in fundamentals, with group and leisure trends still healthy and supply in check across most of our key markets.”

Leslie Hale, president and CEO, RLJ Lodging Trust
“From a segmentation standpoint, our second quarter benefited from a 2.2% increase in group revenues, which was primarily driven by our hotels in Northern California and Louisville, where group revenues increased 20% and 27%, respectively. That said, the group segment only represented approximately 18.5% of our second-quarter room revenues.

“The strong group results were partially offset by a slight decline in transient revenues, which was impacted by a decline in government demand. However, we successfully backfilled the majority of the lost transient demand with incremental contract business.”

Chris Nassetta, president and CEO, Hilton
“Transient RevPAR increased 1.6% on steady business trends and good leisure demand, boosted by the Easter holiday shift. As expected, calendar shifts contributed to softer group performance in the quarter.”

“Overall, we expect the second half of the year to be similar to the first half with consistent U.S. RevPAR growth and slightly softer international RevPAR growth. We expect continued healthy group business towards the mid-point to high-end of our system-wide range, and steady business and leisure transient towards the mid-point of our range.”

Mark Hoplamazian, president and CEO, Hyatt Hotels Corporation
“Both business and leisure transient demand improved, and we gained significant market share in transient business and our full-service hotels in the U.S. during the quarter. Given the typically shorter booking window, it is difficult to predict with certainty what transient demand will look like going forward, but we believe we will continue to have success in driving strong leisure and business transient revenue through the remainder of the year.”

Pat Pacious, president and CEO, Choice Hotels International
“Comfort is one of our most competitive brands in attracting business travel and our largest brand in terms of revenue generated. In fact, our domestic Comfort hotels contribute 40% of our royalty revenue yet are only around a quarter of our system. The strategic transformation initiative for the Comfort brand is in its final stages. Only one-third of the Comfort system will be undergoing our move to modern renovation in the second half of the year, and nearly 30% of the Comfort system has already installed new exterior signage with the modern brand identity, signaling to guests on the outside of the hotel that something’s new on the inside.

“Additionally, Comfort hotels that completed their renovations have increased their business travel revenue growth five times faster than Comfort hotels that have yet to compete their upgrade.

“The ever-increasing number of updated Comfort hotels and our new construction pipeline should allow the Comfort brand to gain even greater traction among business travelers, improve the overall guest experience and result in higher RevPAR for years to come.”

Jim Murren, president and CEO, MGM Resorts International
“The fundamental backdrop in Las Vegas remains very sound, and we see robust demand in nearly all of our business segments. Convention bookings in Las Vegas continue to shape up very nicely in the second half, and are actually tracking better than we expected earlier in the year. In fact, we’re expecting a near record convention mix this year. We’re benefiting from a couple favorable group rotations, and our expansions at MGM Grand and Aria are helping drive momentum into next year.

“Over the medium-term, the Las Vegas convention center expansion is expected to drive even more citywide business to the city. While leisure booking windows are naturally always shorter, current trends are also improving there, especially as we progress through the summer months. This is helped by the strong base of our group business, but we also continue to strategically manage our leisure mix to place the right customers in the right hotels at the right time, and opportunistically lean in to fill in periods where we need to.”

Arne Sorenson, president and CEO, Marriott International
“One of the frustrations for us over the years is we don’t have that much forward-looking data because transient business, particularly business transient business, is very near term in its booking. It always has been. Leisure transient can be quite a bit longer and group even longer still. By and large, when we put together our set of expectations for Q3 and Q4, we’re looking at the data that we have, which obviously is more relevant to Q3, for example, than it is to Q4. But we don’t have that much that gives us certainty about what’s to come.”

Brian Nicholson, CFO, Extended Stay America
“We have seen a deceleration in what I would call business transient. We don’t have a ton of leisure business … but we do have a pretty good proportion of our business that is transient, that’s in the hotels less than six nights. And then the majority of our business is in the hotel seven or more nights.

“This was the first second quarter in many years that I’m aware of where we had more growth in seven-plus than in transient business. That’s just a function of what is typically in the market at that point in time; what’s available to grow is transient during our high-season second and third quarter. Then we typically focus on and see more growth in longer-stay business in the fourth and first quarters.

“We had about a 1% drop in our one-to-six night business that is primarily business transient, and we had … a little bit over 1% gain in our seven-plus business. Over the course of the month of July … our total RevPAR was down by about 0.4%. … The slightly positive that we saw in July was that decline in business transient. It hasn’t evaporated. It hasn’t gone away, but it just has been softer, and it’s been similarly soft since mid-June.”

1 Comment

  • JoanEisenstodt August 19, 2019 12:16 PM Reply

    Curious that only MGM's CEO addressed convention business. Meetings (large and small, city-wide and single hotel) make up a good portion of many cities' hotel business. There are lots of stats that address the economic impact of conventions on cities and on hotels yet why was the segment of the business in which I work not considered? We're all watching to see what the impact of the economy and the impact of what appears to be a 'boycott' of the US by international travelers on meetings and conventions.

    More, if MGM sees that business, especially convention business, will be more robust, why did they lay off so many people to meet their projected "2020" numbers? If service suffers at all - and service includes that time that it takes sales and convention services to get back to those who plan and execute conventions, meetings, and events -what will that say to customers?

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