While leisure demand has been the darling of the hotel recovery, hotel executives believe we’re in the very early stages of a robust comeback for group and events.
Here are some highlights of commentary from the fourth quarter and full-year 2021 earnings season indicating how hoteliers believe group demand will see a robust comeback this year.
“Turning to group, this segment continued its upward trajectory. We were encouraged by net booking activity in the quarter for the quarter, resulting in 660,000 group rooms sold for the fourth quarter. This level of demand represents 60% of 2019 levels and is up from 52% in the third quarter, putting us at 1.2 million group room nights in the second half of 2021. Group revenue increased 35% over the third quarter, driven by 15% demand growth, combined with a 17% improvement in rate. Most of the room night increase came from Boston, Phoenix, San Diego and San Francisco.
“Corporate group room nights increased 11% over the third quarter with a 23% increase in rate. San Antonio and Phoenix drove most of the demand growth in this sub-segment. In the fourth quarter, corporate group room nights were 55% of 2019, compared to 29% for the first half of 2021. Association groups also showed steady sequential improvements. Fourth quarter association group room nights increased 19% over the third quarter, with a 15% increase in rate, largely driven by our hotels in San Diego. Association group room nights were 45% of 2019 in the fourth quarter, compared to only 11% for the first half of 2021.
“Looking forward to our expectations for group in 2022, we currently have 2.8 million definite group room nights on the books, which compares favorably to the 2.5 million group room nights we would have had on the books as of the third quarter, after adjusting for recent acquisitions and dispositions. Group rates in 2022 remains up 1% to 2019 and group demand is currently front-loaded with roughly 60% of definite group rooms booked in the first half of the year.
“Last quarter, we provided a comparison to 2019 group room nights. At that time, our definite group room nights on the books represented 54% of 2019 actuals. Adjusted for our transactions and including bookings from the fourth quarter, 2022 definite group room nights now stand at 60% of 2019 actuals. And total group revenue pace is down just 20% to 2019, which is an additional testament to the quality of our portfolio and the strength of the lodging recovery.”
“Demand for our suburban hotels continued to outpace demand for our urban hotels in the quarter, with occupancy of 69% as compared to 62% for comparable hotels. As has been the case in prior quarters, hotels located in markets with greater historical exposure to large groups and conventions and the two full-service hotels in our portfolio also underperformed. We anticipate demand will strengthen in many of these markets as we move through 2022, further boosting performance for our portfolio and adding to the strong performance in our suburban portfolio.”
“The recovery during the year was driven by the continuation of robust leisure demand, which is well documented and at levels exceeding 2019 in many resort markets. Just as important, there was clear evidence of an acceleration of recovery in both group and business transient demand as business travel volume increased, and in many cases, in advance of returning to corporate offices. This trend was particularly noticeable with respect to small- and medium-sized companies.”
“We believe that the continued momentum and recovery of our urban hotels will be the driving force for portfolio’s growth going forward and expect outsize growth in business transient and group demand throughout the year. We saw evidence of the recovery of these segments throughout the fourth quarter, as improved business transient demand drove our weekday occupancy to 78% of 2019, a 400 basis-point increase from the third quarter, while our group [can’t understand word after group] has improved significantly, up 20% quarter over quarter as we benefited from the travel of small, social and sports-oriented groups, nice trends that further bolster our confidence in the positive trajectory of these segments.”
“The return of the traditional corporate travel represents an outside runway for growth in urban markets. Group demand should accelerate throughout the year as well, with a mix of corporate groups increasing. Our confidence in the momentum of a group recovery has increased with our definite [bookings] currently representing 68% of 2019 levels.”
“When we look at the mix of what we’re getting from a contribution, corporate group is representing 50% of what we’re booking today. I will tell you that was running 5%-10% prior to this year.”
“Further strengthening of already robust leisure travel and steady improvement in the recovery of business transient and group demand also helped results. Fourth quarter group room revenue in the U.S. and Canada was down 32% versus 2019, a 9%-point improvement from the third quarter decline.
“With booking windows still much shorter than usual, in the quarter for the quarter bookings were up 45% versus the fourth quarter of 2019. Group cancellations ticked up late last year and early this year due to omicron mostly for arrival dates in January and February, but those cancellations have slowed more recently.
“New group bookings have also been gaining momentum, especially in the year for the year. In fact, just last week, Salesforce held a large company meeting in New York City that was booked just one month before the event. It was the largest internal meeting Salesforce has held since the start of the pandemic with over 25,000 room nights across 11 of our properties.”
“As you all know, the emergence of omicron variant in November led to rapid rise in COVID cases. Fortunately, this didn’t put a damper on the year-end and plans we had — and had a great December. However, January, which typically relies more heavily on group business in Las Vegas saw significant headwinds driven by groups mostly looking to postpone until later in the year. Cancellations while elevated, were mostly concentrated in a very short term with limited impact beyond March. CES in January was the most visible event this year with attendance down approximately 70%.
“Despite the tougher January, we’re happy to see COVID cases again on the downswing across the broader U.S. Cancellations are declining and group lead volumes are normalizing. Forward hotel [bookings have] been stable over the past few weeks and are once again starting to outpace 2019 levels. I expect that given positive COVID trends in Nevada, we will start to see meaningful loosening of COVID restrictions in the very, very near future, consistent with what we have seen in other states.”
“We estimate that the omicron variant significantly reduced revenues in January and February, both due to group and trends in cancellations and a material slowdown in new bookings, especially in January and early February, and especially in business travel.
“In late December, the JP Morgan Healthcare Conference in San Francisco, which was to be held in early January, was unfortunately canceled and went virtual, costing our portfolio over $6 million in total revenues. Fortunately, the vast majority of citywide and group meetings scheduled in Q1 that were canceled throughout our portfolio have been or are rebooking into Q2 or later in 2022 and have done so at higher rates. This indicates corporations and other businesses are in desire and need to hold their meetings in person.”
“On group business, there are some good indicators of future strength. Q4 brought over 12,000 leads for 2 million group room nights, matching third quarter’s production during what is typically a seasonally slower period. We booked 135,000 definite room nights during the fourth quarter, 8% more than Q3, of which 85% of these nights were for 2022. Momentum was very strong as 40%, or 53,000, of these room nights were booked in December. In January, we’ve seen an encouraging trend that bodes well for 2022. Sales lead volume and lead room nights, even despite the impact of omicron, were up 5% and 33% respectively, as compared to the average month in the fourth quarter.
“This means January points to a Q1 2022 sales lead pace that meets or exceeds Q1 2020 and February is showing continued improvement, clearly a sign of good things to come.
“Citywide room night activity in our major urban markets remains strong. In 2019, Boston’s convention centers generated 349,000 room nights, and they currently project 330,000 room nights in 2022 and 438,000 nights in 2023. Chicago generated 1.1 million nights in 2019 and is expected to generate 1.2 million room nights in 2022 and already has 1.1 million nights on the books for 2023. Collectively, the convention centers in Boston, Chicago, San Diego, [Washington] DC and Phoenix have as many citywide room nights on the books in 2022 and again in 2023 as they had in 2019, and booking activity is poised to accelerate in April.”
“Some of our urban hotels are flat to down. I’d expect the urban to recover as the cash flows recover. We will gain more confidence in the [business travel] and group returning as we move through 2022.”
“Group revenue on the books at our two most important group hotels, the [Westin Boston Seaport District] and [Chicago Marriott Magnificent Mile] is three times more than in 2021. I will note that we are fortunate to have less than 1% of our rooms in the troubled San Francisco market.”
“On the group side, our position for the year is to remain steady as omicron-related disruption was largely contained to the first quarter of 2022 with most events rescheduled for later in the year. We continue to expect meaningful acceleration in group business in the back half of the year as underlying group demand remains strong. Compared to 2019, our tentative booking revenue was up more than 25%. Additionally, meeting planners are increasingly more optimistic with forward bookings trending up week over week since early January. Overall, we remain very confident in the broader recovery and our ability to keep driving value on top of that. This should allow us to generate strong free cash flow growth and our expectation is to reinstate our quarterly dividend and begin buying back stock in the second quarter.”
“We are also encouraged by the improvement in group revenue in the fourth quarter, which improved 18% from the third quarter and actualized at nearly 50% of 2019 levels, with the month of December eclipsing 72% of 2019 levels. It’s remarkable that our Americas full-service, managed hotels had more revenue from groups that booked and stayed in the fourth quarter as compared to the same period in 2019. This just speaks to the pent-up demand that exists to convene at our hotels, and we remain confident this trend will continue into 2022.”
“We continue to see meaningful sequential improvement to group and business transient demand, as well. Business transient revenues increased by over $10 million from the third quarter to account for 30% of the total quarterly revenue mix in the fourth quarter. And group revenues increased by over $19 million from the third quarter to account for nearly 20% of the total mix during the fourth quarter, up from just 7% in the first half of the year. Pockets of good group strength in New Orleans, Orlando and New York and short-term group demand in Hawaii throughout the quarter are an encouraging sign of the pent-up demand that is present as groups increase meeting in person.”
Editor’s note: Chris Nassetta serves on Hotel News Now’s parent company CoStar Group’s board of directors.
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