Skift Take

Analysts at investment banks expect to hear broadly upbeat news from public hotel companies in the next few weeks, even though company revenues haven't returned to 2019 levels.

Series: Early Check-In

Early Check-In

Editor’s Note: Skift Senior Hospitality Editor Sean O’Neill brings readers exclusive reporting and insights into hotel deals and development, and how those trends are making an impact across the travel industry.

Learn More

During the next few weeks, public hotel companies will report their financial performance for the second quarter. Here’s what analysts at investment banks are watching.

Investors will parse results to project when sector revenues may return to pre-pandemic levels.

  • A recovery in group and business travel, along with a revival of international travel, plus steady hotel development and conversions, are all keys to a full recovery.
  • Hotels in the U.S. made $168 billion in sales in 2019 but aren’t projected to return to that until 2024, according to the American Hotel and Lodging Association.

Probing for signs of demand weakness. Signals seem mixed.

  • Analysts expect to hear executives at the large hotel groups say that there’s an ongoing recovery in group and business travel partially offset by a modest softening in leisure travel.
  • “Relative optimism” was the phrase analyst C. Patrick Scholes and Gregory Miller used in a report for Truist to describe their view of the large hotel public companies. Broadly speaking, they expect that hotel bookings will stay strong as fears of a recession in key markets recede.
  • Analysts at Baird said that the pace of growth in revenue per available room — a key industry metric — had slowed more than they anticipated in “the lower-end chain scales,” such as economy hotels. But the expectation is that the overall travel recovery is ongoing.
  • One question analysts will likely ask management: “Are consumers downtrading within groups from more expensive to cheaper brands?” Another question: “Are the fundamentals of leisure demand broadly holding up?”
  • Jefferies analysts said that hotel companies have been experiencing “moderation in leisure demand,” broadly speaking, according to management teams they have spoken with.
  • Will group bookings of hotel rooms driven by corporate meetings and events continue to return to pre-pandemic levels? Analysts are cautiously optimistic.
  • When will so-called “business transient demand’ — essentially road warriors for small- and medium-sized businesses — fully rebound? Truist noted that business travel is the guest segment slowest to come back, with room nights down 20% in the first quarter compared with 2019.
  • Resorts are one possible pocket of weakness. “We are cautious about U.S. resort hotel profitability, especially at the full-service level, given the pressure on demand and increasing headwinds in higher-end leisure room rates,” the Truist analysts wrote.
  • Again, though, analysts were relatively optimistic. As noted in Daily Lodging Report, Baird said of Hilton and Marriott, in particular, that they believe international strength and favorable operating leverage will be positive, despite some softer domestic trends.

Will the rebound in Chinese international outbound travel sputter as China’s economy struggles?

  • Jefferies said China is seeing “steady domestic travel activity while international travel is returning.”
  • A reduction of flight capacity to and from China, partly because many non-Chinese airlines avoid Russian airspace, has delayed recovery but is easing for some destinations. June’s international Google Flight data suggested, on a four-week rolling basis, international flights from China are 53% below pre-pandemic levels, Truist noted. Italy is now the most recovered destination, and the U.S. the least.

Will the pace of “net rooms” growth rise?

  • All analysts will be eying whether hotel companies are staying on track with their plans for growing their footprints.
  • The pace of hotel supply growth is “noticeably below the historical average,” wrote David Katz and fellow analysts at Jefferies.
  • Sluggish supply growth is a mixed blessing.
  • On the one hand, it bolsters the pricing power of hoteliers as demand outpaces supply.
  • On the other hand, large hotel groups rely on net room growth to bolster their revenue and margins. The benefits of each additional property to their management, franchise, or similar networks usually outweigh the marginal cost. Slower net room growth hinders the ability of hotel groups to enjoy the benefits of scale and to make their loyalty programs as compelling as possible by having the broadest possible network.
  • The projections for 2025’s net rooms growth are at the most risk of slipping, if at all, as most construction and conversion deals for this year are already in place. Many deals have a long lead time. So some of today’s executive talk about hotel pipelines might turn out to be wishful thinking tomorrow. On the bright side, interest rate hikes are likely to stop so that lending conditions may loosen for new hotel projects in a positive cycle.

I always read tips and feedback. Contact me at [email protected] or through my LinkedIn profile.

Have a confidential tip for Skift? Get in touch

Tags: Early Check-In, earnings, future of lodging, hotel earnings, Skift Pro Columns

Up Next

Loading next stories