Business travel slow to recover but forecast to reach 2019 levels next year

NASHVILLE, Tenn. – Hotel demand from business travelers, which has been the slowest to recover in the U.S. hotel industry’s recovery from the COVID-19 pandemic, will return to peak levels of 2019 by the end of next year, said CoStar’s Director of Hospitality Market Analytics. Daryl Cronk Projects.

During a data presentation at the 2022 Hotel Data Conference, Cronk said three factors are contributing to the slower recovery in business travel demand: corporate work-from-home policies, executives that reassess the value of business travel in the face of teleconferencing technology and a broader economic slowdown.

“The American Hotel and Lodging Association … estimated that hotel revenue from business travel will be about $20 billion less this year than in 2019,” Cronk said. “As strong as the leisure recovery that we keep hearing about, as much as leisure continues to do, we can’t consider travel fully recovered when we’re leaving $20 billion on the table. We need this return traveler.”

There are signs that the business travel recovery, while still lagging, is gaining steam, he said.

“In a recent survey by the Global Business Travel Association … three things really stood out to me about business travel. First, the vast majority of American businesses are traveling again. They’re back on the road, maybe not with the same frequency or volume as before the pandemic, but businesses are traveling again,” he said.

“Second, COVID is no longer the most important factor in the business travel decision. Staffing challenges and price/inflation are now considered more significant factors than COVID when making business travel decisions. business. And third, meetings this year will represent a larger share of business travel budgets than before the pandemic.”

Cronk said CoStar’s projection that transient business demand for hotels will recover by the end of 2023 is based in part on confidence that business executives will again recognize the value of face-to-face meetings with partners and customers. Also, as the U.S. economy grows, he said, businesses will hire more people who will travel.

Business travel is almost certainly changing.

CoStar and its hospitality analytics company have traditionally measured business travel demand by geography and day of the week.

“The majority of business travel is to an urban location … and then in the middle of the weekdays, Monday through Wednesday, those are your traditional heavy business travel days,” Cronk said.

Year-to-date, the gap in occupancy from pre-pandemic levels in 2019 is wider in both urban and mid-week hotels.

Hotels in “urban locations are trending in the right direction, but still had the largest shortfall or gap through 2019. We can dig even deeper into urban destinations and look specifically at central business districts, and again we see the same pattern. Any area that relies heavily on business travel is lagging behind the overall recovery,” Cronk said.

While “weekend demand has basically recovered completely, and in fact, in the fourth quarter of last year weekend demand was above 2019 levels,” lower demand from hotels in the middle of the week indicates that business travelers are booking fewer rooms, he said.

But another interesting weekday data trend holds some hope for hotels that rely heavily on business travelers.

The traditional shoulder days, Sundays and Thursdays, “have recovered almost as quickly as weekends, [and] they’ve certainly bounced back quicker than weekdays,” Cronk said.

Part of this shoulder day demand comes from the growth of pleasure travel that combines business and leisure.

The flexibility of remote work, which has also been cited as a headwind for business travel, is allowing some of these travelers to extend their weekends to three or four days, he said.

Changing company policies from requiring employees to work from home to allowing remote work could be helping business travel demand for hotels.

“Even if you don’t go to your office by choice because of remote work opportunities, you can still choose to travel. So we’re seeing employment in these central business districts increase even as the office occupancy has been extended,” said Cronk.

Chase Oeser, STR regional sales manager, said in a separate data presentation during the conference that for some weeks in June, Sunday and Thursday hotel occupancy matched Friday and Saturday occupancy.

“I think we’re going to continue to see what defines the ‘new business traveler,'” Oeser said. “We’re still seeing how that plays out. We’ve seen Sunday’s share percentage [of occupancy] grow substantially in 2020, especially in the second quarter.”

Some business trips also come from groups.

Cronk said that while TripBAM data shows corporate travel bookings “are still about a third below 2019 levels… June group demand [for luxury and upper-upscale hotels] it was only 5% below June 2019, very close to pre-pandemic levels.”

The real test will come from hotel performance data in October, “once we get into the fall when leisure travel suffers a seasonal slowdown and we see what’s left and how much of a recovery there really is in travel from business,” he said.

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