Hospitality Not Ready to Return to 2019 Levels

The hospitality outlook for 2022 is better than it was for 2021, however travel readiness will inform how the hotel industry performs in critical areas including occupancy, room revenue, employment, and consumer appetite. 

It’s not ready to fully return to 2019 levels, though, according to a study issued by the American Hotel and Lodging Association with Accenture. 

It projects that only 58.3% of meetings and events will return in 2022, with 86.9% back in 2023. By the end of 2022, hotels are expected to employ 2.19 million people—93% of their pre-pandemic level.

It also projects that summer 2022 will be one of the strongest ever for leisure travel. 

Occupancy Trending Upward

Hotel occupancy is expected to continue trending upward from the historic lows of 2020, averaging 63.4% for the year, according to STR and Tourism Economics. In 2019, the nation’s nearly 60,000 hotels experienced an average annual hotel occupancy of 66%, selling 1.3 billion rooms. The pandemic brought US hotel occupancy to a historic low of 24.5% in April 2020, and annual occupancy fell to 44% for the year. 

Hotel occupancy for 2021 was estimated at nearly 58%—a full five points higher than had been projected this time last year (52.5% projection), but still down more than eight percentage points from pre-pandemic levels. 

While some full-service hotels begin operationally breaking even at 50% occupancy, this does not account for mortgage debt and other costs. As such, most hotels spent the last two years well below their break-even point, relying on reserves to cover expenses. 

So even with a return to near pre-pandemic occupancies in 2022, hotels have a way to go before true recovery. Occupancy rates are projected to continue trending upward in 2022, averaging 63.4% for the year.

Room Revenue Just About Back to 2019

After falling by almost 50% in 2020, hotel room revenue will nearly return to 2019 levels this year. Non-room ancillary spending will continue to lag behind. Prior to the pandemic, the hotel industry’s 5.4 million guest rooms generated more than $169 billion in annual room revenue, which does not include the additional tens of billions generated by renting meeting rooms and other ancillary revenue sources.

In 2020, hotel room revenue fell by nearly 50% across the US to just $85.7 billion, then rebounded to $141.6 billion in 2021. This means that over those two years, hotels lost a collective $111.8 billion in room revenue alone. 

Room revenue is projected to reach $168.4 billion this year, or within one percentage point of 2019 levels. The outlook for ancillary revenue from meetings, events, and food and beverages—estimated at $48 billion annually before the pandemic—is less clear. 

Meet the New Traveler

COVID-19 has made an indelible mark on life—and travel—as we know it, according to the report. The hotel industry will feel the impact of the ways that consumers have fundamentally changed in what they want and in how they behave and engage with brands. 

Instead of focusing primarily on price and quality in making purchasing decisions, these new travelers are motivated to purchase by factors including health and safety, ease and convenience, care, trust, and reputation. 

In fact, 44% of US consumers say the pandemic caused them to rethink their personal purpose and re-evaluate what’s important in life, according to recent Accenture research. 

The same study reveals that 49% want companies to understand how their needs changed during disruptions and address these needs. What’s more, 38% expect brands to take more responsibility for motivating them and making them feel relevant rather than only doing their business.

The Rise of the New Leisure Traveler

Leisure travelers with these new motivations will be a significant force driving travel demand in 2022—a marked shift that began last year after years of business travel being the staple of the global travel industry. 

With corporate travel policies still in flux, leisure travel will continue to recover faster in 2022, driving the hotel demand landscape. According to an analysis by Kalibri Labs, throughout 2022 leisure hotel spend will have returned to 2019 levels, but business travel will struggle to reach 80% of 2019 levels. 

This means the share of hotel spend by type of travel will continue to be inverted from before the pandemic; in 2019 commercial travel made up 52.5% of industry room revenue and in 2022 it is projected only to represent 43.6%.

Many hotels’ business models have been primarily focused on business customer needs such as on-site dining, laundry services, exercise facilities, and business centers. The amenities that leisure travelers expect, such as spas, pools, or easy transportation to top tourist spots, have often been a secondary focus.

As such, these hotels will need to make structural changes in how they attract, convert, and retain leisure customers. Compared to business travelers, leisure travelers want more guidance for the booking process and more information about the destination. 

The New Face of the Business Traveler 

While business travel demand will lag that of leisure travel, it is not, as some have argued, a thing of the past. This is especially true in the United States, where business travel overall is expected to increase in 2022 compared to last year, and, according to an analysis by Kalibri Labs, by Q3 it is projected to reach 80% of 2019 figures.

While a full recovery isn’t expected until 2024, global business travel is projected to increase by 14% in 2022, with the United States and China seeing the largest upswing—both are projected to grow by 30%.

Meeting Volume on the Move

Forecasts point to a 58% recovery by the end of 2022. By the end 2024, forecasts currently project levels at 110% of the 2019 baseline.27 13 faster, and as part of this, put their people on the road sooner. They also believe that small and medium enterprise (SME) travel is buoyed by fewer travel restrictions and more flexible travel policies. 

The SME sector represents an upside opportunity for hotels to fill midweek occupancy and balance highly anticipated leisure demand patterns. This is a largely untapped market—one that was often squeezed out by the largest corporate negotiated segment.