Inflation for travel sectors like hotels isn't a cause for concern at the moment, as it continues to signal demand is returning from record-low performance seen in the early months of the pandemic.
Hotel room rate increases helped to send inflation on annual basis to its most rapid clip in nearly 40 years.
Inflation jumped 6.8 percent in November from a year ago — the fastest pace since 1982, the U.S. Labor Department reported Friday. Hotel rates were up nearly 3 percent from October and soared 25.5 percent from November 2020.
The lodging sector was among the highest risers, which also included gasoline prices that were up 58.1 percent year-on-year, and rental cars at 37 percent. The update follows a report from CWT and the Global Business Travel Association last month that warned hotel prices would rise by 13 percent in 2022 — which could be wide of the mark.
American Hotel & Lodging Association CEO Chip Rogers cautioned to Skift in recent weeks that inflated gas prices could dampen hotel performance over the winter, as more people try to save money by not going on road trips.
Consumer Price Index: 12-month Percentage Change at November 2021
|Gasoline (all types)||58.1%|
|Used cars and trucks||31.4%|
|Meats, poultry, fish, and eggs||12.8%|
But hotel executives have previously lauded daily rate inflation as a good thing that accelerates their recovery from the pandemic. Inflation can be a positive for the travel sector, as it signals demand is returning from record lows seen last year.
Unlike the aftermath from prior downturns, hotel executives expect the pandemic recovery to throttle ahead quickly due to the industry’s strategy to maintain rates throughout the crisis rather than offer steep discounts to woo potential guests. Lower rates wouldn’t stimulate demand during pandemic lockdowns.
“Things are going to come back faster than prior recoveries here,” Hilton CEO Christopher Nassetta said on the company’s third quarter earnings call. “Typically, it’s a grind to build back occupancy, and rate lags significantly. Rate is leading the charge here.”
The most recent U.S. hotel recovery forecast from STR modeled October’s inflation numbers, which showed rates up 17 percent year to date. STR expected demand and daily rates for U.S. hotels would near a full recovery next year but not fully until after 2025 when adjusted for inflation.
“A pleasant highlight of the recovery is the recovery of pricing power. If you look back at other challenges, whether it was post-9/11, whether it was post-Great Recession, in those instances, it took us upwards of four or five years to get back to pricing power,” Marriott CEO Anthony Capuano said a recent Morgan Stanley consumer conference. “In many markets, we’re already back to 2019 [average daily rate] levels.”
Photo credit: The Blackstone Hotel, part of Marriott's Autograph Collection, in Chicago. Drew Harbour / Unsplash