CRE companies in the office space market are getting accustomed to news of space cutbacks, like the 20% one in 2021 HSBC Holdings Chief Financial Officer Ewen Stevenson mentioned in an interview with Bloomberg Television on Tuesday.
But it was the second plan Stevenson referred to that underscores problems for the hotel industry: a 50% reduction of past business travel expenses. Why send people on the road when a video call gets there so much faster?
Klaus Kohlmayr, chief evangelist for hospitality industry revenue management company IDeaS, tells GlobeSt.com that business travel is “absolutely critical” for hotels.
“I would say about two-thirds of revenue comes from some sort of business travel related segment,” whether individual traveler, managed or unmanaged accounts, or conventions and meetings, he says.
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The signs for business travel are mixed, with “the lucrative business routes, both domestic and international, that are usually the mainstay of the airlines route profitability,” being crushed, Joseph Smith, director of aviation services at investment banking firm Cassel Salpeter, tells GlobeSt.com. “Many airlines have tweaked their route system to accommodate the leisure traveler, which is leading the post-vaccine travel recovery. As a result, the surging leisure travel segment is currently far outstripping the business/commercial passenger revenues, flights, and mileage.”
While Smith expects “travel norms and business activities to substantially increase, leading to a substantial, healthy and sustainable recovery for the airlines and the overall aviation ecosystem,” that will take a few years. It’s a sign that hotels will continue to face challenges.
“I think there’s going to be certain parts of business travel that will start picking up now,” Bruce Rosenberg, president of HotelPlanner, tells GlobeSt.com. “I think the first part will be sales calls, people going out there, mixing it up with customers. The expectations that you’re going to be meeting in person will return faster.” Even meetings have started to come back to life, though major events like the annual tech CES show could take another year or two.
“The last part of business travel that will be slow to come back will be intra-company trips,” in which executives and employees visit other facilities of their corporations, Rosenberg adds. “That’s going to take a while to come back, and that’s probably 25%, 30% of total travel trips.”
As of early 2021, hotel room demand was still down 32%, according to data from Oxford Tourism Economics. Depending on geographic region, average occupancy rates across the U.S., Europe, China, and the rest of Asia Pacific ran between 20% and 50%.
The loss of business travel is particularly worrying, as it’s traditionally one of the highest rate segments, Kohlmayr says.
According to commercial real estate marketplace CrowdStreet, overall improvement has begun to show strong momentum, but “while good news currently abounds for resurging demand in the hospitality sector, true recovery at the operating level is still likely months, if not a year away.”