ALIS Panel: Corp., Group Travel to Accelerate Despite Economic Fears

Hospitality industry players have been readying themselves for economic headwinds going into 2023 thanks to persistent inflation and some projections of recession. Word on the stage this week at the Americas Lodging and Investment Summit in Los Angeles, however, is that “the R-word” has been overstated—particularly in terms of how it could affect travel—and demand is unlikely to retreat. 

Industry prognosticators and hotel industry executives, speaking in two separate sessions at the event, said corporate travel and meetings are poised to be a standout, despite the potential for economic downturn. While that healthy outlook is good news for many corners of the industry—including corporate travel buyers—companies looking for hotel rate pressure to ease at any point in 2023 likely will be disappointed. 

One forecaster predicted a recession for the U.S. economy, but emphasized its fleeting nature.

“We do assume that we're going to be seeing an economic recession across the U.S. in early 2023. It'll be brief and it will be mild, but that is built into our numbers,” said Lodging Analytics Research & Consulting president Ryan Meliker about the firm’s hotel industry outlook.

Hotel executives also were relatively upbeat about macroeconomic indicators and felt the U.S. hotel market, in particular, would weather headwinds well. 

“Yes, the debt market is trouble. Yes, inflation was … creeping up to pretty all-time highs, but it's going to curve back down pretty quickly," Remington Hotels CEO Sloan Dean said. 

“I think we're probably going have a soft landing, while wages are still strong and employment is still strong. So the U.S. can accelerate the second-largest market in the world,” InterContinental Hotels Group CEO for the Americas Elie Maalouf said.

Choice Hotels International president and CEO Patrick Pacious said recent rising wages had offered a boost to Choice’s performance, with some of that wage lift directed toward travel spending in the midmarket. 

“Yes, we're seeing inflation, but we're also seeing rising wages, particularly for the middle class,” he said. “So I do think the middle class—since the pandemic—has gotten a bit of a pay raise, and they're using that extra money on [travel], particularly leisure.”

The luxury segment, however, will do better all than others in 2023 in terms of recovery given that it has been slower than other segments to hit a 2019-level stride so there’s more room to move, according to research firm STR. Adding that consumers in this bracket typically are more recession-proof.

“When we look at the demand coming into that segment … we don't expect a lot of slowdown. Travelers going into the luxury segment aren't as impacted by inflation,” STR president and CEO Amanda Hite said, adding “We expect that we will be able to maintain, with that demand, the rates that we're achieving now in the luxury segment.”

Group travel, meetings and events pushed into the new year with record numbers from some hoteliers. 

“Group [travel] is not only back, it's better than it's ever been,” Dean said. “Group demand for us—we run mostly full-service—group revenue [dominated] Q2 through Q4. If you removed Q1 last year, [group travel] was up 13 percent for us,” he added.

“Our [group] bookings September through December were over any prior month all the way back to 2019. So for the next two and a half years [we’ve been] putting more [groups] on the books than we have ever as a company,” Dean said.

Stage talk in both sessions bounced around the question of whether consumers would apply the brakes to leisure travel at any point in 2023. Speakers diverged slightly from one another on this point. 

Kalibri Labs co-founder and CEO Cindy Estis Green said the research firm has seen leisure travel surpassing 2019 levels since 2021, but now sees it “starting to flatten,” while “commercial business is coming back.” Additionally, she said much of that demand has been driven by not by the largest corporate accounts, but "by the smaller, medium sized and unmanaged business. There's a lot of interest in that business.” 

Meliker also supported this idea, noting leisure "has been well above historical levels over the past couple of years. That will moderate in 2023.” 

Hotel executives, however, largely disagreed regarding any leisure slowdown.

“Even if there's a lot of inflation, [consumers] are going to sacrifice other things. They're not going to sacrifice [travel],” said Maalouf, and he went further: “We know that's the case on leisure, [and we must] go beyond that and say business travel's coming back.” 

Nearly all panelists agreed that group and meetings business would work to close any gaps should leisure experience a minor slowdown, and several panelists were confident that transient business travel—particularly for small and midsize companies—would be durable in the face of economic headwinds. 

Green said that while managed corporate business still hasn't come back to 2019 levels, "the good news is that probably bodes well if there's a recession because the business that used to fall out [in] previous recessions isn't all back to fall out. So if you're going to have a drop, it probably won't drop by as much.”  

Enterprise Business Travel Recovery Still Complex

Panel moderator Francis Nardozza, chairman and CEO of REH Capital Partners, asked panelist Danielle Bozarth, a senior partner with McKinsey & Co.—a company BTN identified among the the highest-spending business travel programs in the U.S. in 2021—whether business travel volumes at the global consulting firm had returned to 2019 levels. She said they had. 

“The short answer is … it is," Bozarth said. "It definitely looks a bit different."

Key to that recovery, Bozarth added, was that McKinsey & Co. “grew during the pandemic,” and “we are back traveling,” she said. That means that travel volumes at the firm now are distributed across more travelers, so the per-headcount volume is lower than in the past. Bozarth added that would be an enduring change for McKinsey in accordance with sustainability initiatives now in place to moderate travel emissions. 

Still, she said, “Travel is the absolute lifeblood of our business,” particularly when it comes to client-facing trips, but other types of travel remain a shifting and complex proposition, even at the large consulting firm. In addition to sustainability pressures, Bozarth spoke of prioritizing essential travel at McKinsey and reducing internal collaboration travel to mitigate rising travel costs. Despite the panel’s prediction of continued group strength in the market, Bozarth predicted for McKinsey, at least, that internal group travel would downshift. 

“I think over 2023 and 2024, you’ll see some of our group business drop a bit, but you’ll see a full return to client travel,” she said.  

Forecasts for 2023 and Beyond Are Strong 

STR updated its forecast in its latest report, and now expects average daily rate growth for U.S. hotels in 2023 above prior projections. The updated forecast also shows “a 30-basis point increase on [revenue per available room] for this year, driven mainly by average daily rate growth,” Hite said. 

“ADR has been outperforming our forecast, but we do think that ADR is going to slow down in terms of growth rate in the second half of the year to where it will be flat, slightly positive,” Hite said. STR expects the bulk of rate growth to come from the luxury and upper upscale segments. The company also expects ADR to slow down eventually this year before revving back up in 2024.

According to LARC’s forecast, “As we move through the year, RevPAR growth moderates and by year-end fourth quarter it's roughly flat,” Meliker said. 

LARC’s forecasting also showed underperforming markets will rev up in 2023, and outperforming markets may take a back seat. 

“The strongest markets are going to be those that really underperformed throughout the course of this recovery," Meliker said, citing Minneapolis, San Francisco, San Jose, Calif. and  Washington, D.C. "And on the bottom [of the expected growth trajectory], there are markets that have really outperformed.”

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