• Hotel Industry Recovery Time

    US Hotel Industry's Full Recovery Projected to Be Three Years Away as Losses Still Cut Deep

    Leisure Travelers Help Drive the Slow Rise in Demand for Rooms

    Hotels may be seeing demand improve but profitability remains difficult. (Getty Images)
    Hotels may be seeing demand improve but profitability remains difficult. (Getty Images)

    While U.S. hotel occupancy makes its slow recovery, profitability remains far out of reach and a full rebound may be nearly three years away.

    Hotel demand in the United States has been returning with the rise of leisure travel as governments ease restrictions put in place to help stop the spread of the coronavirus. Hotel research firm STR and Tourism Economics now forecast demand being down 36.2% for this year, an improvement from the earlier estimate of 45%.

    “But we expect it to take 11 quarters for the number of room nights sold to rise to the corresponding levels of 2019,” Jan Freitag, STR senior vice president of lodging insights, said in a statement. STR is owned by CoStar Group, the publisher of CoStar News, and Tourism Economics is owned by Oxford Economics.

    Demand is expected to increase 35.4% next year along with occupancy increasing 33.7%, according to STR and Tourism Economics. The average daily room rate is expected to rise 5.2% and revenue per available room will jump 40.6%.

    “The worst is behind us,” Adam Sacks, president of Tourism Economics, said in a statement. That assessment is based on the current pandemic spread pattern, and any significant changes that emerge from the early record spikes in confirmed coronavirus cases, could prompt a readjustment to the forecast.

    A deeper look at the data beyond the standard top line performance metrics of occupancy, revenue per available room and average daily rate shows the hotel industry’s coronavirus pandemic plight and how far it has to go in recovery.

    Gross operating losses per available room was negative $10.26 in May, down 110.1% from May 2019, according to newly released figures from STR. That loss is an improvement from April when hotels lost an average of $17.98 per available room.

    Total revenue per available room, which includes a hotel’s food and beverage sales, rose to $28.62 in May from $17.39 the previous month. Earnings before interest, depreciation, taxes and amortization was negative $24.14 per room, an improvement from negative $32.30 in April.

    Limited-service hotels, or economy hotels, have been the bright spot because they are favored by leisure travelers looking for a quick vacation.

    “The lower end of the market has seen less severe performance declines throughout the time of the pandemic, and in May specifically, we saw limited-service properties begin to turn a profit when crossing the 45% mark in occupancy,” Joseph Rael, STR’s senior director of financial performance, said in a statement.

    STR's Freitag said “recovery should continue provided the country avoids significant setbacks in its progress against the coronavirus.”

    But many states are beginning to see surges in confirmed coronavirus cases as cities and states reopen further and draw crowds.

    Out of the 25 largest hotel markets tracked by STR, Phoenix led the pack for revenue increases in May from April, followed by Los Angeles/Long Beach and San Francisco. Los Angeles led gains in operating profit increases in May.

    Arizona and California, however, have seen new confirmed coronavirus cases set daily records. Los Angeles, in particular, leads the state in confirmed cases with 89,566 and deaths at 3,205, according to California health data.