GUEST COLUMN: The COVID-19 pandemic has taken a heavy toll on the hospitality industry, stretching hotel owners and operators to new levels, forcing them to adapt, innovate and be agile.
The travel industry has faced many obstacles. In August, however, Canada opened its border to many American visitors and the number of travelers to Canada doubled, foreshadowing what is to come for the industry. The international border (for some travelers from other countries) also reopened in early September.
After 18 months, the industry is slowly starting to recover and peak pre-pandemic levels are expected to be reached in 2023.
For business leaders and investors in this space, it’s important to understand not only how hotels have performed, but more importantly, how they continue to hold their value.
Hotels are adapting to a new way of operating, for now
With minimal warning and no contingency plan in place, demand for hotels virtually vanished overnight, forcing owners and operators to become entrepreneurs.
Hotels have had to adopt a zero-based budgeting model; reduce amenities and housekeeping, streamline food and beverage options, and employ fewer people to stay profitable.
With lower operating costs and a redesigned model, the margins are expected to be higher in the next cycle as some of the elements adopted by the new model are implemented, accompanied by an increase in the guest traffic.
Full recovery expected by 2023
With increasing domestic and international travel and positive industry forecasts, RevPAR (revenue per available room) for hotels in Canada is expected to reach a full recovery to pre-pandemic peak levels by 2023.
While that may seem like a long way off, it’s actually one to two years earlier than initially expected at the start of the pandemic.
From a global perspective, there has been a strong recovery in demand for leisure travel, leading to a recovery in hotel profitability.
China was the first to see a recovery in leisure travel, followed by the United States and now Europe, although all remain dependent on government restrictions.
Despite the increase in leisure travel, the industry is experiencing a prolonged recovery in transient business travel. This could be attributed to “back to office” taking longer than expected and inconsistent vaccination policies.
However, the trends show that demand has improved and increased week over week. Looking ahead to next year, group business travel is expected to improve with fares at or above 2019 levels and room bookings are also expected to increase.
Industry leaders, investors must be patient
As travel restrictions change, it cannot be denied that the demand for the hotel industry will increase, ultimately resulting in higher profits and a steady recovery for the hospitality industry.
While a full recovery will not be immediate, there is certainly hope as the pandemic continues to run its course.
International travel is expected to be the biggest beneficiary of changing travel restrictions and this recovery will ultimately benefit 24-hour gateway markets which have also been hit hard by the pandemic.
To survive and thrive, hotels must continue to adapt in order to retain their value as external factors begin to work in their favor – industry leaders and investors will need to be patient.
Samuel Sahn is the Managing Director, Portfolio Management at Hazelview Investments.