Skift Take

Here we go again. Maybe.

One thing is clear for the hotel business heading into winter amid the emergence of a new coronavirus variant: Leisure hotels will continue to be the best-performing assets for several more months. 

But this doesn’t have to mean hotel owners should write off all expectations of business travel.

Government and health officials around the world for the last week doubled down on the talking point it is too early to gauge what impact the Omicron variant might have on the already stop-and-start nature of the global economic recovery. Omicron was first detected last week and arrives on the heels of the Delta variant that fueled a late summer surge of new cases that pushed back the anticipated return of in-person work and corporate travel. 

While leaders aren’t ready to draw parallels between the two variants, the hotel industry should look to Delta as a road map for the next few months in strategizing for winter business.

“The Delta variant was a speed bump in the road to recovery, but it was not a roadblock. It probably pushed the trajectory of recovery back sort of by two months, and it was certainly more seen on the business and the group side, where you have nervous HR directors and corporate risk departments,” said Patrick Scholes, a managing director of lodging and leisure equity research at Truist Securities. “It’s too early to say what exactly may happen here, but it certainly doesn’t incentivize already nervous HR directors and risk managers to say, ‘Hey, let’s accelerate our return.’”

Even if the science around Omicron’s likely impact won’t be available for another few weeks, it’s safe to bet on several hits the hotel and greater travel industry will take from its initial emergence. 

Countries around the world rushed to issue travel restrictions and bans on eight countries in southern Africa, including South Africa, which the U.S. initially greenlit as one of the 33 countries it would allow entry to vaccinated international arrivals. Rochelle Walensky, director of the U.S. Centers for Disease Control and Prevention, indicated Tuesday the U.S. would narrow its testing window for international arrivals and even enact quarantine requirements in certain cases.

Countries across the Asia Pacific region, already slower in recovery due to tougher travel restrictions than other parts of the world, once again shut down borders. Japan entirely shut its borders to foreigners after ever-so-slightly beginning to ease restrictions last week. 

China’s world-leading recovery cratered during the Delta variant amid its own wave of domestic travel restrictions and zero-tolerance policies. That decision is widely seen as an economic liability that enabled even Europe’s lagging hotel industry to catch up and accelerate beyond China’s in recent weeks.

Travel restrictions, even if limited to international travel, are likely to weigh heavy on hotels in major cities. These types of hotels rely significantly more on corporate travel and inbound international tourists than properties in smaller cities or leisure destinations.

A Baird report released this week noted, “recent investor optimism and positioning toward a more robust urban market and business travel recovery in 2022 are likely being reevaluated.”

The Delta variant’s late summer surge pushed back the return to office, and presumably the corporate travel that would go with it, from after Labor Day in the U.S. to later this year or into early 2022. The Omicron variant is likely to have a similar effect on companies that had been planning to return early in the new year. 

“To look at one of your employees in the face and say, ‘This trip is so important, we need you to get on a plane and travel and be with people who might go crazy because they’re being asked to ask wear masks,’ — a lot of businesses are not doing that,” said Steve Carvell, a professor at Cornell University’s School of Hotel Administration. “It’s going to be a pretty bad winter outside of resorts. We’re going to find that hotels in the major cities like New York, Boston, and Chicago, are not going to be doing great this winter…It’s going to look very much like last winter, unfortunately.”

Strategizing A Return to the Pandemic Status Quo

A new variant that yet again pushes back corporate and convention travel generally means a return to the tried-and-true playbook for hotel recovery during the pandemic: domestic leisure travel. 

If you own a hotel in Miami, rejoice. If you own one in San Francisco, not so much.

But it doesn’t have to necessarily mean let panic set in for long. 

All the major hotel companies noted an August dip in performance — some argued this had more to do with seasonal drop-offs than the Delta variant — while things stabilized in September and once again throttled ahead in October. 

Marriott International, the world’s largest hotel company, has a significant presence in sub-Saharan Africa thanks to its Protea Hotels chain. But a company spokesperson declined to comment on the latest variant due to it still being so early in its detection. 

A differing factor between the arrival of Omicron compared to Delta is how there is significantly more available supply of vaccines and therapeutics this time around, even if they need to be tweaked to directly combat this strain, than when Delta was first detected in December 2020. 

The hotel industry is almost certain to operate in a state of limbo for the next several weeks, as scientists determine if anecdotal evidence of Omicron cases being mild pan out. If those reports hold, Omicron could end up being merely a speed bump like Scholes suggested earlier. 

“It’s kind of an on-off switch. Once there is a societal realization that this new variant is not going to be all that dangerous, or it’s not worth completely putting your life on hold, then I think you’ll start to see some travel,” Sean Hennessey, a professor at New York University’s Jonathan M. Tisch Center of Hospitality, said while also noting it is still early to speculate on precisely how impactful the new variant might be.

“Then, I think you’ll see the floodgates open, if you will, that people are interested in hitting the road once again.”

A New Kind of Business

Even if hotel CEOs tried to downplay the impact of the Delta variant on their most recent earnings calls, there was a palpable shift in how they view the future of corporate travel. 

Small and medium-sized businesses are suddenly in fashion. 

Hilton CEO Christopher Nassetta emphasized during a third quarter investor call his company’s business travel recovery was riding a wave of smaller companies that can’t afford to not be on the road. Nassetta noted demand from small- and medium-sized companies wasn’t “fully back to pre-Covid levels but are pretty close.” 

Room demand from Hilton’s major corporate clients was still 40 percent of 2019 levels during the third quarter. The durability of smaller companies and their travel plans is a major appeal to hotel companies.

Roughly 80 percent of Hilton’s pre-pandemic business transient demand came from smaller companies while big corporations made up the remaining 20 percent. Nassetta predicted that will eventually end up being a 90-10 split.

Marriott CEO Anthony Capuano didn’t give a growth target on his own third quarter earnings call, but he did say 60 percent of the company’s business travel demand heading into the pandemic came from smaller companies. That figure increased to 75 percent for the first three quarters of 2021.

“Leading the relative strength and recovery for business travel has been the small- and medium-sized businesses. A big part of that is that those businesses, especially the smaller ones, don’t have all-encompassing HR and legal risk departments that are making sort of the corporate decision,” Scholes said. “Whereas, a small business, the owner may also be the HR department and the legal department all wrapped into one making that travel decision.”

Subscribe to Skift Pro

Subscribe to Skift Pro to get unlimited access to stories like these ($30/month)

Subscribe Now

Tags: coronavirus, covid-19, hilton, marriott, omicron variant

Photo credit: Conference halls and boardrooms are likely to remain empty — and the accompanying hotel room nights depressed — while the world better understands the Omicron variant. Vbccevents / Wikimedia

Up Next

Loading next stories