Despite all the uncertainty in the hotel orbit, all the major hotel companies returned to profitability. Keeping a grip on the p-word is going to require major structural shifts.
All the major hotel conglomerates, from hard-hit Accor to Marriott, vaulted into profitability by the summer. It was a huge win and major change in the narrative for a sector that hit rock bottom the prior year.
But hotel companies recognized that to better prepare for the next catastrophe, they must find more durable revenue streams. This means a shift away from the kind of business traveler hotel companies typically compete for as well as an embrace of local customers.
Hilton CEO Christopher Nassetta indicated the company was putting even more focus on so-called road warriors, business travelers who work for small- and medium-sized companies that typically stayed on the move during the pandemic. Companies like Choice Hotels and Wyndham, which returned to profitability before Hilton, already cater to these type of business travelers.
Special corporate contracts, belong to large companies in sectors like finance and consulting, remain well below pre-pandemic levels — about 40 percent off 2019 levels at the end of the third quarter, according to a Hilton investor call. Demand from smaller businesses is only about five to 10 percent off 2019 levels, Nassetta said.
Roughly 80 percent of Hilton’s business travel demand came from smaller businesses before the pandemic, but Nassetta said he aimed to grow that to 90 percent. That makes sense given how larger companies continue to push back their return to the office and have been hesitant to green light a massive return to work travel.
“We’ve continued our work from before Covid to further increase our focus on this segment of demand,” Nassetta said. “This demand is higher rated and more resilient, which has helped us recovery more quickly in business transient and should drive rate compression in the future as larger corporate travel picks up.”
This type of business accounted for about 60 percent of Marriott’s business transient demand heading into the pandemic, but it swelled to 75 percent for the first nine months of 2021.
While Marriott CEO Anthony Capuano wasn’t as vocal as Nassetta in permanently altering the company’s business travel profile, he has been a proponent of “bleisure” travel, or a blend of business and leisure.
This structural shift by some of the world’s largest hotel companies is a financial no-brainer. Although smaller in scale, Choice Hotels and Wyndham returned to profitability early in the pandemic — largely due to their respective focus on drive-to leisure travel and road warriors.
Marriott and Hilton have the opportunity to do the same but on a grander scale across their massive global footprints, especially when the pandemic legacy appears to be borders can close at a moment’s notice, leaving domestic travel as the only revenue generator.
But the shift to a different kind of business travel is only one of the new instruments in the profitability toolkit. The hotel industry’s push to lifestyle hotels, spearheaded by Accor, is another way companies are looking for more certain — as certain as can be in a pandemic — ways to generate cash.
Lifestyle hotels cater to more local neighbors, as these properties offer more in the way of food, beverage, and even services like coworking. Accor sees so much potential in the sector that it spun out its lifestyle brands like SLS and Delano into a joint venture with Ennismore, owner of The Hoxton brand.
The new entity, which Accor owns two-thirds of, may not account for a lot of revenue today, but company leaders see a lot of runway for these brands.
Accor’s lifestyle hotels only accounted for less than 2 percent of the company’s room count earlier this year and 5 percent of fee volume. But Accor CEO Sebastien Bazin estimated at Skift Global Forum earlier this year that fee figure could quickly rise to 40 percent.
Hotel companies swung back to profitability, and they hope to stay there by thinking small (business) and local.
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Photo credit: Hotel companies moved away from counting on major corporate travel contracts to fill hotel rooms in 2021. Daderot / Wikimedia