Small-Market and Affordable Hotels See Gains;
Long Road to Recovery Lies Ahead for the Lodging Sector
Hospitality’s progress slows amid spreading infection. Ho-tels, along with other businesses, began to see rising foot traffic in late spring as many cities initiated phased reopenings of their lo-cal economies. After bottoming out at 21 percent during the week ended April 11, average weekly hotel occupancy for the U.S. has im-proved to over 47 percent in late July. The pace of growth is slowing, however, as many metros, particularly those in the Sunbelt, have re-ported surges in coronavirus cases. Amplified health concerns have prompted rollbacks in reopenings, with markets such as Miami, Nashville, and Phoenix reporting modest occupancy contractions in July. Even in settings where the infection rate is dropping, ho-tel performance remains well below historical averages, driven by COVID-19’s profound impact on travel.
Pandemic travel trends flip hotel demand dynamics. The health crisis has radically shifted the motivations for and methods of trav-el, with repercussions for hotel room demand. The cancellation of virtually all major domestic business and entertainment events un-til at least early 2021 has lessened visitation to traditionally prom-inent destinations. Those who are traveling are avoiding commer-cial transportation, influencing vacation decisions. Together these trends have temporarily inverted the relationship between hotel performance in large and small markets. States with the highest average occupancy rates in June included Idaho, Mississippi, and Alabama, which historically trail major business and tourism hubs. Hotels along highways and in small cities are benefiting from a re-newed focus on road trips to less-populated scenic destinations.
Guests seeking lower room rates benefit limited service hotels. Lost or reduced income is also influencing hotel room demand, aiding properties with lower nightly rates. Economy and mid-scale hotels have shown more resilience during the pandemic, while full-service establishments have faced steeper challenges. In order to manage costs, many higher-end hotels have suspended certain amenities that normally support a premium rate. Current travelers are instead focusing on sanitized accommodations and features such as kitchens that support physical distancing. Such options are one reason why foot traffic at some extended-stay ho-tels dropped half as much in April and May as other higher-cost brands. Amid fewer differentiating services and greater financial disruptions, guests are zeroing in on the bottom-line room rate.