Hotel industry data firms STR, Kalibri Labs, HotStats and Lodging Analytics Research and Consulting took the stage at the Americas Lodging Investment Summit in Los Angeles on Monday not only to forecast hotel industry performance metrics for 2024 but also to analyze some of the drivers beneath those numbers. Corporate travel performance remains a question mark for forecasters. Each offered mixed projections for the coming 12 months, along with mixed conclusions about how business travel’s protracted recovery will continue to impact overall hotel performance metrics.
Leisure Travel Growth Will Slow
Forecasters agreed that U.S. domestic leisure travel demand would begin to moderate in 2024, and that outlook drove a commensurate slowdown in projected U.S. hotel performance metrics. STR forecast 2024 occupancy to hit 63.6 percent, compared with 63 percent in 2023. The firm forecast occupancy growth would slow to reach 64 percent in 2025 and basically remain flat for 2026. STR projected average daily rate increases to moderate over the next three years as well. ADR in 2023 was up 4.3 percent year over year, but STR projected that to slow to 3.1 percent in 2024 and 2.8 percent in 2025.
Kalibri Labs forecast occupancy would reach 66 percent in 2024, achieving a 1 percent increase over 2023 actuals. It projected ADR would rise only 2.7 percent over 2023. LARC’s analysis showed 2023 occupancy at 63.2 percent and projected a 0.8 percent increase to 63.7 percent for 2024. LARC forecast a 2.2 percent occupancy drop to 62.3 percent in 2025. While LARC projected that ADR would continue to grow each year, the firm projected growth to slow from the 4.4 percent increase achieved in 2023 to a 2.8 percent increase in 2024 and a 0.8 percent increase for 2025.
Business Travel Indicators Mixed
Some of the differences in hotel performance projections may reflect the variable optimism among forecasters regarding business travel’s ability to buttress a leisure demand slowdown.
STR president Amanda Hite offered the most bullish projections for business travel—and travel overall. Despite some forecasts that the U.S. economy could soften in 2024, Hite projected that “the travel economy is going to fare a whole lot better than the general economy this year.”
She cited for the leisure travel market continued strong growth patterns for higher-income households that generate the lion’s share of U.S. domestic travel spend. For business travel, she cited Oxford Economics’ forecast that corporate profits are expected to grow by 10 percent in both 2024 and 2025 as “a pretty good indicator” for a strong business travel environment in the coming year.
LARC CEO Ryan Meliker offered a counter argument to Hite’s optimism. He cited tightening spending numbers and stronger savings rates among U.S. consumers. “When they start saving, they stop spending,” he said, projecting these trends would begin to impact leisure travel. Meliker was equally pessimistic about any potential wave for business travel in 2024.
He cited LARC’s fourth-quarter expectation that a strong push to return to the office would generate a sizeable uptick in business travel in the final stretch of 2023. The subsequent analysis showed the contrary. “There has been zero change. … We haven’t seen that pickup we have been looking for,” he said.
Meliker conceded that business travel volume would “trickle back” in 2024 alongside return-to-office measures “coupled with general economic activity,” he said.
Changing Business Travel Patterns
Kalibri Labs CEO Cindy Estis Green further parsed the business travel situation. “Business travel is definitely not up,” she said. “But the small and medium-sized corporate accounts have consistently grown, and they’re running 120 percent, 130 percent of 2019.” She also suggested that this recovery pattern was responsible for what looks like a business traveler migration away from agency bookings—with hotels booked traditionally through the global distribution system channel—and over to direct brand websites.
“A lot of brands are trying to make it easier and easier for those small and medium-sized accounts to book [on their sites]. Those [companies] that are interested in compliance and that are going through the GDS will continue to do that, but that [total volume] is still smaller. So for a lot of the business travel, it’s coming in through the brand dot-com. We may also start to see small group bookings come through the brand dot-com—not just individual transient—because those small training groups and team meetings are more important in a world of remote work.”
Geopolitics Disrupt Travel, Labor Costs Keep Prices High
HotStats director of hotel intelligence for the Americas Laura Resco grounded her expectations for hotel bookings and pricing in sociopolitical trends that continue to impact the industry. She noted the tendency in election years for U.S. domestic hotel bookings to take a hit, both on the leisure side and on the business side, as “the business environment also becomes more uncertain.” She layered in geopolitical instability that not only could impact incoming international travel but also could disrupt supply chain and impact hotel costs.
While Resco showed nominal gross operating profit per available room 3 percent ahead of 2019 for the overall U.S. hotel industry in 2023, accounting for inflation brought those numbers down dramatically.
“In real terms we were behind 14 percent compared to 2019 … when we take inflation into account and debt,” she said. Labor costs, which have continued to rise with some significant union wins in 2023 and a continued tight labor market, are likely to contribute to elevated rates for corporate and leisure customers even if demand growth slows in 2024.
