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The ongoing correlation between the hotel industry’s recovery in China and the U.S. is showing early signs of a break.

Hotel industry analysts and executives had, until recently, pegged China and the U.S. — countries with strong domestic traveler bases — to lead the world in a travel industry recovery from coronavirus. Rising coronavirus case counts in the U.S., however, ended an 11-week streak of occupancy gains the week of the American July 4th holiday, while demand continued to throttle forward in China and other parts of the Asia-Pacific region.

But higher occupancy doesn’t mean these stronger performing countries aren’t without their own travel demand headwinds.

“Demand is not everything,” said Jesper Palmqvist, the Asia-Pacific area director for STR. “You get some occupancy, but then you have to fight to get other things back up.”

Demand rebounds are happening significantly faster than returns to 2019 levels of daily rates and revenue across Asia. Markets like Mainland China, Tokyo, and Bangkok are expected to see some degree of a short-term demand recovery in a matter of five to eight months, according to STR. Reviving the kind of average daily rates seen last year is a different story.

High average daily rates are typically tied to large-scale events, many of which have been called off until an effective treatment for coronavirus is in mass production — meaning revenue rebound timelines should be measured in years rather than months.

Countries like China and New Zealand are leading the world in recovery from coronavirus, Palmqvist added during a webinar this week hosted by SunTrust Robinson Humphrey.

New Zealand controlled the spread of coronavirus in less than 60 days, largely due to tough travel restrictions and quarantine orders. While it still has a ways to go in full recovery, the country’s leaders are promoting domestic travel. New Zealand now sees hotel occupancy rates as high as 75 percent on Saturdays, according to STR.

Marriott CEO Arne Sorenson indicated last month the tough initial crackdown from countries like China on the spread of coronavirus, while rough for the hotel industry in the short-term, was likely better for the hotel industry business model in the long-term.

“You see in China’s response something of the advantage of a powerful central government that can by itself set the rules and by and large get 100 percent compliance,” Sorenson said during a late June webinar hosted by the American Hotel & Lodging Association. “They move quickly to implement the kind of restrictions that have, as far as we can tell, a profound impact on the spread of this virus.”

Mainland China’s average hotel occupancy ended the week of July 11 at nearly 53 percent — up from its own dip in momentum last month following a second wave of cases in Beijing. Business transient travel is returning to China, and the country is on a path to eclipsing a 60 percent average hotel occupancy rate by the third quarter if momentum continues and the country doesn’t see any further flare-ups.

“It could get close to normality by the end of the year, due to this being such a domestic market,” Palmqvist said.

But while the two countries may lead the world in medical recovery and occupancy growth, it is still a long way out before their respective hotel industries can call it a complete rebound. Hoteliers are still in survival and recovery mode, meaning guest loyalty is still largely earned through reduced rates. Average daily rates in China are still down nearly 20 percent from a year ago.

This year “is all about survival, and the rebuilding will take some time,” Palmqvist said. “What is your new target for 2021?”

A Patchwork Quilt Recovery Path

The rest of the Asia-Pacific region still has catching up to do with the current hotel industry recovery poster children of China and New Zealand, largely due to varied stances on travel restrictions.

Countries like Vietnam and Japan are still reviewing when and how to reopen their borders. Sri Lanka and Bali plan to open their borders over the months of August and September. The Maldives, which is more reliant on foreign tourism than a country like China, opened this week to all global tourists without any quarantine requirements or health checks at the border.

“That’s a risk, but I see why [the Maldives does] it. It’s not [home to] the wealthiest state coffers in the world,” Palmqvist said. “This imbalance makes it hard for governments and investors to find a way to rely on business.”

While China continues its path to recovery, countries like Australia and Fiji and markets like Hong Kong are taking longer to rebound, due to second or even third waves of cases and ensuing travel restrictions to tamp down on the latest virus surges. Hotel occupancy in Japan, which entered the crisis later than other countries in the region and has recently seen a second wave of cases, is averaging between 20 and 30 percent.

Hong Kong recently cleared the 50 percent hotel occupancy mark, the best performance STR has tracked in some time.

“If I look at it purely from performance, it’s been a slow recovery at first,” Palmqvist said of Kong. “But 50 is the new 80 in many markets.”

Global Ramifications

So goes China, so goes the rest of the world has been the hotel industry’s mantra of late, largely due to the country going through lockdowns months ahead of the rest of the world.

“Why do we keep mentioning China? In the last five months, every progress they’ve made tells a story in the U.S., Europe, and Asia in what will recover first,” Palmqvist said.

The U.S. may have to soon start looking elsewhere for a recovery model. Until its occupancy dip earlier this month, the U.S. was lagging China’s recovery pattern by about seven weeks, according to Patrick Scholes, managing director of lodging and leisure equity research at SunTrust Robinson Humphrey.

But the recovery correlation break-up is likely due to more than just a U.S. case surge.

American hotels tend to rely more on group business and convention travel than those in the Asian-Pacific region. With those business lines likely on hold until a vaccine or effective treatment plan comes out, U.S. hotels could see a recovery plateau earlier than properties in Asia.

“Granted, one week is not a trend, but it’s still the first week where [recovery patterns] really deviated,” Scholes said.

Photo Credit: China and New Zealand (pictured: Queenstown, NZ) are leading the rebound across an Asia-Pacific region in varied states of coronavirus recovery. Lawrence Murray / Wikimedia