If you were going to invest in hospitality CRE, you might want to head to upscale. Although there have been some negative signs in typical bellwethers of the travel industry, other indicators suggest that those who can afford the best expect to keep enjoying themselves.
Recent airline earnings projections seemed to be the logical warning because of Delta’s updated March Q1 2025 outlook. The initial guidance from called for year-over-year revenue of between 7% and 9%; operating margin was supposed to range 6% to 8%; with earnings per share sitting between $0.70 to $1.00.
On March 11, the company announced the new quarter guidance, with revenue expected up only 3% to 4%; operating margin from 4% to 5%; and earnings per share, up $0.30 to $0.50. “The outlook has been impacted by the recent reduction in consumer and corporate confidence caused by increased macro uncertainty, driving softness in Domestic demand,” it wrote.
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As Barron’s reported, it set off worry among investors. That likely extended to hospitality CRE, particularly high-end properties. As a Moody’s Analytics analysis of Federal Reserve data found, the bustling economy is not a story of all consumers spending shoulder-to-shoulder.
The top 10% of earners — households making $250,000 a year or more — are responsible for 49.7% of all consumer spending. Thirty years ago, the amount was about 36%. In the U.S. economy, such activity is responsible for roughly 69% of GDP. A tenth of households drive 34.3% of GDP by themselves.
If that segment of the population decided to cut back on spending, it would have a significant impact on the entire U.S. economy, including luxury and higher-end hotels, restaurants, entertainment, and other aspects of the hospitality market. But that doesn’t seem to be the case. Delta noted its premium, international, and loyalty revenue growth trends were consistent with previous expectations.
United Airlines' January 21 earnings estimate for FY 2025 was between $11.50 and $13.50 compared to the 2024 guidance of $9.00 to $11.00, an increase of 18.5% to 21.7%. Southwest Airlines expects 2025 operating revenue per available seat mile, or RASM, to range from 3% and 5% over 2024. It projects that Q1’s RASM year-over-year will be up 5% to 7%.
Deloitte undertook a survey to look at attitudes towards travel within the U.S. Among high-wealth individuals, 75% were planning to use hotel for leisure travel in the next three months and 69% expected to fly.
And if those who are better off decide to spend, that bodes well for the economy and CRE owners of hospitality-associated properties. The highest quintile of household incomes accounts for 51.9% of the total earnings, according to Census Bureau figures.
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