One year later, vaccines are available to anyone in the United States ages five and older, and 63% of the U.S. population is fully vaccinated. Yet cases are on the rise, as are concerned about new virus variants and outbreaks.
The reality is that COVID-19 continues to influence daily life — and this collective coexistence will be the norm for the foreseeable future. The virus underlies the implications of this year’s State of the Hotel Industry report, which include forecasted macroeconomic trends as well as expected shifts in consumer and business sentiment
The next phase of recovery will be uneven, potentially volatile. But one thing remains certain: 2022 is the year of the “new” traveler.
Bleisure travel—that is, blending business and leisure travel—has exploded during the pandemic, representing a profound shift in consumers’ attitudes and behaviors related to travel. This, in turn, will significantly impact hotel operations as the industry responds to meet the needs and expectations of its guests.
All indications are that the hotel industry will continue moving toward recovery in 2022, but that full recovery is still several years away. According to an analysis for AHLA by Oxford Economics, hotel room night demand and room revenue are projected to nearly return to 2019 levels in
Room revenues are projected to reach $168 billion, within 1% of 2019 figures and an increase of 19% compared to 2021. Occupancy is projected to hit 63.4%, nearing the 66.0% rate achieved in 2019 and far above the 44% and 57.6% reached in 2020 and 2021, respectively.
The return of room revenue is certainly welcome news for hoteliers, yet it does not tell the whole story.
Even with a return to pre-pandemic room revenue performance, these figures do not account for the additional estimated more than $48 billion5 in pre-pandemic spending on food and beverage, meeting space, and other ancillary services—a revenue source expected to lag significantly in its return. Industry experts project that only a little over half of meetings and events will return in 2022, 6 with the negative impacts of the Omicron variant still to be determined.
Additionally, hotels across the country are continuing to dig out from a two-year period where they lost a collective $111.8 billion in room revenue alone.7 A partial recovery in 2022 will not be enough to allow hotels to completely pay back lenders, fully rehire staff, invest in delayed property improvements, and refill business cash reserves.
There remain strong headwinds and potential disruptors for a full recovery. While leisure travel will likely return fully in 2022, business travel is projected to remain significantly below pre-pandemic levels. The severity of the short-term effects of Omicron on the hotel industry is still unclear.
Moreover, future variants will create volatility in both the return of leisure and business travel and tens of billions of dollars connected to meetings and events spending. According to Cvent’s November 2021 Group Business Insights Report, one-quarter of meetings being sourced are hybrid, and 72% of surveyed meeting planners are sourcing events with an in-person component.
Hotels will continue to struggle with staffing shortages, reducing their ability to maximize revenue from potential travelers. Inflationary pressure means that though a nominal recovery may occur earlier, true adjusted recovery for the industry will take until 2025, according to STR and Tourism Economics.
While a true recovery to pre-pandemic levels is still several years away, the more that hotels understand, prepare for, and respond to the needs of the “new” traveler, the brighter the future looks for an industry that is vital to the American economy.
FINDINGS AT A GLANCE
The travel outlook for 2022 is trending positively, but continuing volatility is expected, with full recovery years away. Occupancy rates and room revenue are projected to approach 2019 levels in 2022, but the outlook for ancillary revenue is less optimistic. Business travel is expected to remain down more than 20% for much of the year, only 58% of meetings and events are expected to return, and the full negative effects of Omicron are not yet known. Labor headwinds will mean employment levels at year end will be down 7% compared to 2019.
“New” travelers expect different things from hotel brands. Consumers’ motivations, behaviors, and expectations all shifted during the pandemic— profoundly changing how hotels operate to satisfy their guests, who are increasingly likely to be leisure or bleisure travelers or digital nomads. As a result, technology will be even more critical in a property’s success.
Retaining and attracting top talent means showcasing career paths, not just jobs. Hotels can build a workforce for the future by communicating the breadth of career opportunities that are available in the industry to current and prospective employees.
Sustainability initiatives will play an increasingly important role for the industry. Hotels that make commitments to sustainability goals and programs are not just satisfying guests’ expectations, they are making changes that are good for the business as well.
Loyalty programs will evolve in response to the new travel landscape. With high-volume business travel down, traditional loyalty programs no longer make sense. The most effective loyalty programs will offer more personalized rewards that meet the needs of occasional business travelers and leisure travelers as well.
TRAVEL READINESS TRENDING POSITIVELY, BUT REMAINING VOLATILE
The volatility of travel in the pandemic era makes forecasting travel readiness more critical— yet more difficult—than ever. Do people want to travel? Will their travel plans be curtailed by broader economic realities? Will travel restrictions at home or at their destination force them to change their plans?
Put simply, travel readiness indicates how willing people are to take a trip. To understand travel readiness today, we turned to the Accenture Travel Readiness Index, a new way of assessing intent to travel suited to the realities of today’s travel landscape. The monthly, multi-country Index tracks both travel and non-travel indicators that influence intent including COVID-19 related country health status, short-term economic factors, travel demand, and mobility status. These indicators are weighted to reflect the size of their respective impact on travel readiness.
Readiness is a Moving Target
The Index is updated monthly because travel readiness is not absolute. This will be true for as long the pandemic is not fully controlled and new waves, variants, and governmental and public health responses continually reset people’s trust and confidence in travel. For example, consider how quickly travel restrictions were put in place in countries around the world when the Omicron variant emerged in late 2021. The World Health Organization designated it a variant of concern on November 26, 2021, and on December 2, 2021, President Biden announced new protocols for international travel.
Travel readiness trends in the second half of 2021 are instructive of what to expect in 2022: momentum in pockets coupled with stops and starts caused by one or more travel indicators.
The Global Picture
With pent-up demand and many people opting to go about or return to daily life with the virus among them, travel readiness saw a 5% jump in September 2021 compared to August 2021 globally. However, readiness trends remained volatile through the end of the year. November 2021 experienced a 2% decline from the previous month due to outbreaks and new travel restrictions. Overall readiness in November 2021 was 23% below the 2019 baseline.
The U.S. Picture
In September 2021, the U.S. market saw a 3% decrease over August 2021 because of stringent restrictions for international travelers. Airline traffic and hotel occupancy followed the historical pattern, falling after a very strong summer and showing strength in the fall. Screenings by the Transportation Security Administration (TSA) peaked in July at just over 2 million airline passengers, and hotels reached 71% occupancy.
By November, the easing of European travel restrictions to the United States drove a significant increase in airline capacity, implying a surge of demand. 12 The country continued to open travel as the holiday season arrived. In fact, Thanksgiving week 2021 was a record-breaker for U.S. hotels—occupancy rates were at 53%, and RevPAR was 20% higher than during the same period in 2019.
A Global Pandemic with Local Impact
It’s not only domestic travelers’ readiness that the hotel industry must account for as a driver of demand in 2022. International travelers are a vital audience as well.
International travelers accounted for 15% of total U.S. travel spending in 2019 before the pandemic began, but just 6% in 2020.15 In 2022, the World Travel & Tourism Council is projecting a 228% leap in spending in the United States by international travelers compared to 2021.
Preparing for this potential surge means acknowledging that sentiments about travel and travel readiness will vary from country to country because this global crisis has been highly localized in its impact. Hotels that think about readiness through the lens of what people’s pandemic experiences have been—and are now—are best positioned to determine if they need to introduce additional health and safety measures to appeal to these travelers.
Here is what the Index reveals about travel readiness in what are expected to be critical inbound markets for the United States.
The uncertainty remaining about the nature of the Omicron variant at the time of publication suggests how difficult it is to predict travel readiness in 2022. What we can assume is that restrictions imposed to combat the Omicron variant are likely to stay until March. What’s more, several short-term factors have the potential to impact travel readiness positively or negatively, and overall, we do not expect the Index to show consistent signs of recovery until mid-2022 at the earliest.
HOSPITALITY OUTLOOK 2022
Travel readiness will inform how the hotel industry performs in critical areas including occupancy, room revenue, employment, and consumer appetite. While 2022 will not see a full return to 2019, the outlook is stronger than it was in 2021.
Hotel occupancy is expected to continue trending upward from the historic lows of 2020, averaging 63.4% for the year, according to STR and Tourism Economics.
In 2019, the nation’s nearly 60,000 hotels experienced an average annual hotel occupancy of 66%, selling 1.3 billion rooms. The pandemic brought U.S. hotel occupancy to a historic low of 24.5% in April 2020, and annual occupancy fell to 44% for the year. Hotel occupancy for 2021 was estimated at nearly 58%—a full five points higher than had been projected this time last year (52.5% projection), but still down more than eight percentage points from prepandemic levels.
While some full-service hotels begin operationally breaking even at 50% occupancy, this does not account for mortgage debt and other costs. As such, most hotels spent the last two years well below their break-even point, relying on reserves to cover expenses. So even with a return to near pre-pandemic occupancies in 2022, hotels have a way to go before true recovery. Occupancy rates are projected to continue trending upward in 2022, averaging 63.4% for the year.
Figure 1 – Hotel Room Occupancy by Year
After falling by almost 50% in 2020, hotel room revenue will nearly return to 2019 levels this year. Non-room ancillary spending will continue to lag behind. Prior to the pandemic, the hotel industry’s 5.4 million guest rooms generated more than $169 billion in annual room revenue, which does not include the additional tens of billions generated by renting meeting rooms and other ancillary revenue sources.
In 2020, hotel room revenue fell by nearly 50% across the United States to just $85.7 billion, then rebounded to $141.6 billion in 2021. This means that over those two years, hotels lost a collective $111.8 billion in room revenue alone. Room revenue is projected to reach $168.4 billion this year, or within one percentage point of 2019 levels.
The outlook for ancillary revenue from meetings, events, and food and beverages—estimated at $48 billion annually before the pandemic— is less clear. Knowland projects that only 58.3% of meetings and events will return in 2022, with 86.9% back in 2023, meaning that much of that revenue will continue to be missing.
Figure 2 – Hotel Room Revenue by Year
By the end of 2022, hotels are expected to employ 2.19 million people—93% of their pre-pandemic levels.
In 2019, U.S. hotels directly employed more than 2.3 million people. After the significant drops of 2020, hotels finished 2021 at 77% of their 2019 employment levels.
Although strong growth is expected in the year ahead, hotels are projected to end 2022 with 2.19 million employees—down 166,000 or 7% compared to 2019, reflecting continued headwinds in the labor market.
Figure 3 – Employment by Year
There is pent-up demand for travel—especially among younger travelers.
After months of quarantine and travel restrictions early in the pandemic, many Americans were eager to travel again in 2021; that demand is expected to continue this year. According to Morning Consult’s State of Travel and Hospitality Q4 Report, 64% of U.S. adults say they have traveled within the past year, with younger and higher-income consumers leading the way.
The report also found that of the eight countries surveyed, Americans were among the most eager to hit the road, with 50% expecting to take a leisure trip within the next six months
ccording to Accenture’s 2021 U.S. Holiday Shopping Survey, 40% of U.S. consumers plan to focus on saving for a vacation or trip away in the future. Saving for a trip is consumers’ second most important financial priority after paying down debt (Figure
A full 43% expect to travel as much or more over the next six months than they did compared to the same sixmonth period in 2019.
Figure 4 – U.S. Consumers’ Top 5 Financial Priorities of 2022
Gen Z and Millennials are especially eager to travel again, although they still need some reassurance to do so. One-third of this group believes that timely information, better traveler flow management, and the ability to book and confirm vaccination status through travel company apps will persuade them to travel again.