Senior analysts from STR and IHG highlighted some hotel performance trends during the worst months of COVID-19 to project what the post-pandemic recovery might look like.
REPORT FROM THE U.S.—Several months in, it’s clear that the COVID-19 pandemic isn’t just another lodging cycle.
In “Navigating this cycle (and what recovery may look like)” during the online Hotel Data Conference, Jan Freitag, SVP of lodging insights at STR, and Isaac Collazo, VP of competitive intelligence at InterContinental Hotels Group, shared some U.S. hotel performance highlights from the past few months to try to forecast what shape the post-COVID-19 recovery will take. (STR is the parent company of Hotel News Now.)
A disruption, not a cycle
The coronavirus has significantly affected travel demand globally, including in the U.S. Looking at the daily roomnights sold dating back to STR’s founding in the 1980s, Collazo said it’s impossible to view 2020 as part of a cycle.
“This is not a cycle; this is truly a disruption,” Collazo said. “We’ve never seen anything quite like this.”
Total U.S. demand recorded new historic lows during the spring of 2020, Collazo said.
“Even when STR first began, as a nation we were selling 1.5 million rooms on average per day,” he said. “At the worst of COVID, we were only at 1.1 million rooms per day. The flipside is, we were still selling 1.1 million rooms per day, but again, you can see how just very different where we are today versus cycles that we’ve normally been through.”
Based on the demand chart, past disruptors seem to pale in comparison to COVID-19, Freitag said.
“To look at 9/11 and 2009 and say, ‘Oh wow, this is really disruptive to our industry,’ and when you look at it on this chart on this scale, it‘s really hard to tell that something happened, that something went very wrong,” Freitag said.
The perks of indexing
Since COVID-19 is such a disruptor, Collazo said he is turning to indexing key performance indicators, which he added provide a clearer picture than just looking at less bad year-over-year declines.
“Indexing allows us to see the recovery a little easier, and it’s again a more positive message than versus a negative ‘We‘re seeing what‘s less negative than it was last week,’ and I don’t want to talk that way,” Collazo said. ‘I want to talk about what’s really changing. How‘s occupancy coming back? How’s demand coming back? … You can see the occupancy index, and this gives us a lot of hope, this tells us that essentially occupancy today is about 63% to 64% of what it was a year ago.”
It’s also easier to track where hotel demand is trending by indexing the metric, Collazo said.
“If you look at between the 21st of June and the 5th of July, … you can see that there was a good number of markets that basically were doing very well during that holiday period, underscoring that consumers and guests still want to travel, they still want to get out,” he said.
Charting the recovery of average daily rate is a bit trickier, Freitag said. Pricing patterns will likely differ around the world.
“Keep in mind that China didn’t discount as much, and so therefore, it doesn’t have that much higher to go, and it stands roughly at a 20% increase,” Freitag said. “Lastly, if we look at the United States, it took quite a while for ADR recovery to start. You see that we’re basically in week eight or so where we’re seeing some ADR recovery on the trajectory.”
Past U.S. recessions also paint a different recovery picture in terms of ADR, Freitag said. Following 9/11, the ADR drop-off was sudden, but so was its recovery, while after the Great Recession ADR took much longer to recover.
“9/11, the impact was immediate and very, very strong; at the trough basically ADR declined 23% in the first month, but then exactly a year later, we already saw positive ADR growth on a monthly basis,” he said. “The Great Financial Crisis was very different, sort of a slow burn, … to the trough of ADR down 20%, and then took us 18 months to see a positive month of ADR.”
So what does this mean for ADR in a post-COVID-19 recovery?
“The monthly trough was minus 44%; I don’t think it’s going to get any worse,” Freitag said. “Luckily, we’re seeing it’s getting I guess less bad for the lack of a better term, but I’m very curious to see if by next April or next March, will we see positive ADR changes, or are ADRs still going to be contracted and is it going to take 18 months or even 24 months or so?”
Collazo reiterated that COVID-19 isn’t following a normal cycle pattern, so its recovery might not either.
“You can see that we’re coming out of this a little faster than we have in other (cycles),” Collazo said. “If you look at the Great Recession, we had flat ADR for some period of time where it was down, not moving very much, and in this case in the last three months you see some good progression. So I will be the contrarian saying, ‘This is not normal.’ This is a different time, and we may see a different recovery cycle pattern.”