Fitch Ratings Lowers Outlook For Global Lodging Sector

Fitch Ratings has lowered its outlook for the global lodging sector, citing the spread of the Omicron variant and the reintroduction of travel restrictions.

Those factors combined equate to weakened recovery prospects for revenue per available room, or RevPAR, for the first half of 2022. The impact of COVID-19 on international travel will force hotel operators to rely on domestic leisure travel and the eventual return of domestic business travel, the ratings agency said in a statement.

Fitch says it now anticipates RevPAR to recover to about 70% of 2019 levels in 2022, with most of the recovery happening in the second half of the year.

“Occupancy gains and rate performance in the US in 2021 were greater than we expected, but many countries in APAC and Europe remain subject to tighter mobility restrictions,” the firm said in a statement. “China, the largest contributor to global outbound tourism in 2019, will not have a meaningful recovery in international travel as long as it pursues its zero Covid-19 strategy.”

Fitch also expects the sector’s RevPAR to take at least four years to reach pre-pandemic levels, citing changing restrictions that limit visibility and mean hotel bookings are made last-minute, despite pent-up demand and high disposable income among consumer segments in most regions.

Leisure travel demand will likely continue to focus on holiday destinations, regional getaways, outdoor accommodations like campsite, and “self-sufficient” short-term rentals. Meanwhile, business travel appears to be recovering faster in the US than in other parts of the world. 

“We expect urban destinations, especially in the upscale segment targeting business travelers, to remain under pressure as ‘return to office’ policies have again been delayed, due to Omicron, with limited local trips and almost no business gatherings,” Fitch analysts said in a statement. “New hybrid working models may blur the line between business and leisure travelling, leading to longer stays, but we expect demand for international business trips to remain fragile as corporates have shifted towards virtual events and videoconference meetings.”

Fitch also notes that more hotels were able to remain open in 2021 than in 2020, and they experienced lower losses thanks to greater abilities to absorb costs.

“Asset-light operators have generally proved more resilient than asset-heavy peers, with less-volatile profits, despite not having fully recovered incentive fees yet,” the Fitch report notes. “Inflation, tight labor markets, sharper competition from short-term rentals and the lack of public-sector support, such as furlough schemes, will pose new challenges in 2022, particularly for independent hotels with less financial flexibility.”

A report late last year from Moody’s Analytics similarly predicted that the hotel sector will face a “protracted recovery,” with experts maintaining that certain segments of business travel may never fully return to pre-pandemic levels. Moody’s expects permanent declines within the range of 10 and 30%, as would-be business travelers increasingly substitute technology for in-person meetings.