Excerpt from CoStar
Leisure Travel Demand Likely To Stabilize Amid Likely Mild Recession, Analyst Projects
Ryan Meliker, president and co-founder of Lodging Analytics Research & Consulting, is projecting a brief, mild recession either late this year or early in 2023 but warns there's a risk of it becoming worse if the Federal Reserve continues hiking interest rates.
Even with a recession looming over the U.S. economy in the near future, a lodging industry analyst predicts that groups are poised to book more rooms at U.S. hotels in 2023.
Ryan Meliker, president and co-founder of Lodging Analytics Research & Consulting, said during his company's December 2022 U.S. Outlook presentation last week that group demand data is "very encouraging" heading into the new year.
Much of that optimism comes from the fact that convention center bookings for 2023 are pacing 13% over 2022. Based on what's on the books now, there should be double-digit growth in group demand for hotels next year, Meliker said.
Leisure travel hit record highs in 2021 and 2022 as stimulus checks helped fund travel and pandemic restrictions loosened. That trend is likely to run out in 2023, Meliker said.
Record-high stimulus packages were "borrowing from the future to support the present," he said. "Well, guess what, that was two years ago. Now we’re in the future and we have to pay it back,” he said.
There is a strong correlation between the ability to travel and the demand to travel from a leisure perspective, he said. At the end of 2020, the average U.S. personal savings were doubled from the start of the year, boosting leisure demand. Those funds are now dried up, and coupled with inflation, personal savings rates are at their lowest since 2010.
“That is concerning from a leisure travel perspective — the willingness and propensity for people to spend money on leisure travel. I'm not saying it's going to go away; it is just a big red flag for leisure travel,” he said.
Relatively speaking, it isn’t all negatives for the leisure segment, he said. Even with the potential drop-off to past years, Meliker said leisure is projected to stabilize in 2023 and end up 30% over 2019 levels.
Still, group business is the demand segment with the greatest optimism moving forward, he said.
However, the optimism for group demand is offset by the pessimism for business transient demand. Corporate transient demand is projected to increase slightly moving into 2023, but Meliker said he doesn’t believe it will ever get back to pre-pandemic levels due to the lack of people working in offices.
Office use rates are at about 50% of what they were in 2019, and the less employees need to be in the office, the less they need to travel to do business, he said.
“We think office utilization rates will never get back to those levels. That's going to truncate the number of nights that people go on the road to meet with their clients to fewer days; that creates fewer room nights and fewer and shorter trips for corporate transient, which unfortunately will reduce corporate transient demand,” he said.
The silver lining: Hotels will have better pricing power over group business travel, since instead of sending travelers on shorter transient business trips, companies instead may send employees to larger conferences to facilitate business more efficiently.
With this added boost, Meliker projects group demand will grow 10% over 2019 levels in 2023 after being off 15% in 2022.
“We think it’s going to snap back pretty strong,” he said. “We’re pretty encouraged by the data that we see from groups.”
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