Skift Take

As the U.S.-China trade war drags on, its effect on group business travel becomes more and more apparent. An uncertain political environment within the U.S. is also probably having an impact.

A recent Cvent report forecast a decline in group bookings for late 2020, but for many hotel companies, this decline is already being felt.

Hilton, Hyatt, and IHG experienced a slowdown in group bookings in the first half of 2019, Skift found in its analysis of hotel earnings. In part, this was due to trade tensions with China, an issue which threatens to stretch through next year.  Marriott, meanwhile, came up as an outlier, reporting healthy corporate booking in spite of a business climate that has sometimes been a lag on biz travel.

In Hilton’s 2019 second quarter earnings, the hospitality company reported a decline in group bookings in the U.S. and weak leisure demand in China. Many corporations have cut back on expenditures as they wait for the uncertainty to blow over, and a trade deal to be reached.

“More people are putting their caution flags up,” said Hilton CEO Christopher Nassetta in an earnings call in July. “Talking to other CEOs, talking to friends — anybody you talk to — will tell you that what’s going on in the political world, which is connected to the trade world, is definitely having some impact.”

Nassetta was surprisingly frank about the situation. He predicted that the trends would probably continue throughout the rest of the year and into 2020, unless a trade agreement is reached. Even if a deal is reached, he added, there will be an adjustment period, which would further prolong some of the headwinds.

And it doesn’t end there. The general political uncertainty in the company’s domestic market also threatens to slow down corporate demand.

“There are other swirling activities with the political theater ramping up with the 2020 election coming. So what we’ve anticipated for the second half of the year, honestly, is more the same trends,” he said. “My best intel from talking to lots of CEOs, our folks around the world and our teams, is that I would project out the current trends into next year.”

Come see Hilton CEO Christopher Nassetta speak at Skift Global Forum Sept. 18 in NYC. Get Tickets Now

Hyatt had a similar story, though the company was unsure what to attribute the slowdown to. In the second quarter of 2019, the hotel saw group bookings in its Chicago market – its business hub – decline 15 percent, dragging revenue per available room down.

“We have significant exposure in Chicago, which is our largest group market, and 2019 has been a very weak year,” said Hyatt CEO Mark Hoplamazian. However, he added that the majority of this drop was due to lower social, military, education, religious, and fraternal (SMERF) demand, along with sluggish corporate banking demand, rather than general corporate travel. Demand from retail and pharmaceutical companies, he noted, was strong.

The company predicted that group business would stay relatively flat throughout the rest of the year, before picking up in 2020, and then declining again in 2021.

Meanwhile, business travel suffered in China as well. Hoplamazian attributed much of this to the economic conditions in the region combined with ongoing trade tensions with the U.S., leading to lower demand from both domestic and international travelers.

IHG also experienced a slowdown with some of its business travelers. The hotel group does not have a large presence in group bookings, but saw weaker group demand overall. Lower corporate demand stretched to China, where bookings for business travel, as well as meetings, were lower.

As for the future, the company noted that travelers were currently unwilling to book far out, making predictions difficult.

“We don’t have as much group business as some of our peers, so looking at group pace is a little harder for us,” said Paul Edgecliffe-Johnson, chief financial officer at IHG. “And booking windows are quite short at the moment, so it’s hard to look through to business on the books and say exactly what that will give us in the second half.”

The Outlier

Marriott, meanwhile, bucked this trend, reporting healthy group bookings for the quarter.

“Despite the business climate, our North American sales team had a solid quarter,” said Marriott CEO Arne Sorenson, adding that revenue from group booking increased six percent. “And booking pace for the next 12 months is up, largely related to strong corporate demand.”

The hospitality company acknowledged that its overall demand had suffered due to a less favorable economic environment, but had a few ideas why its corporate group business had outperformed.

For one, Marriott has a lot more group space compared to a company like Hyatt or IHG, making it possible for the company to offer more variability in terms of price, brand, and location. In an environment where group booking is down, it makes sense that a company like Marriott would capture much of the demand.

The company also pointed out that hotel commission rates had decreased from 10 percent to seven percent, skewing yearly and quarterly comparisons somewhat.

However, Marriott also ran into modest trouble with demand in China, although it fared much better than its peers. The company pointed to the U.S.-China trade war as a main reason for slower growth in certain cities in the region, as international tensions put a widespread damper on business travel.

Come see Hilton CEO Christopher Nassetta speak at Skift Global Forum Sept. 18 in NYC. Get Tickets Now


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Tags: hilton, hyatt, ihg, marriott

Photo credit: The Hyatt Regency Orange County The Hyatt Regency Orange County / Flickr

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