Hospitality industry looks strong for 2023

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“Historically there has been a strong correlation between GDP growth and RevPAR,” said Umar Riaz, EY Americas Hospitality Sector Leader, in a recent interview with HOTELS Magazine. “But it’s my opinion that given the current dynamics of the travel industry, even if there is a mild recession in the next six months or so, the travel industry will still perform strongly.”

The post-pandemic urge to travel remains strong, which should drive continued growth in 2023. In the US, RevPAR was up 8.1% in 2022 from 2019, and Europe was up 6.1% for the same period. Asia, driven primarily by China, was the weak spot with a 31.2% RevPAR decline from 2019 to 2022. The industry’s average daily rate (ADR), which measures the average rental revenue earned by an occupied room per day, was up 13.6% last year in the US and 18.5% in Europe, when compared with 2019 figures.²

Business travel is also poised for recovery as companies ramp up their travel budgets. Trade shows and conferences are selling out, reflecting the pent-up demand that persists across all industries to get out of the office. Another factor in the industry’s resurgence is the growing work-from-home (WFH) segment of the workforce. In some cases, those employees build their travel plans around both business and leisure. Bleisure travel, where business travelers add on a day or budget extra time in their work trip for sightseeing or some other type of leisure activity, is a growing trend. The result of these market developments is more revenue and continued economic recovery for the hospitality sector.

Reasons for optimism in hospitality sector

The EY organization projects that the global economic picture is mixed heading into 2023, depending on the region, but the long-simmering slowdown will likely turn into a global recession. In the US, the economy is visibly cooling because of persistent inflation, rising borrowing costs, deteriorating private sector morale and rapidly slowing global economic activity. Elevated inflation and a lingering energy crisis will lead to a moderate recession in the Eurozone. In China, the economic outlook remains uncertain, with growth constrained by the recently lifted zero-COVID-19 policy, a lingering property sector downturn and weakening global trade activity.

However, several factors contribute to optimism for the hospitality sector in 2023:

Leisure demand, group business travel poised to remain strong:
Consumer surveys show that most people are planning at least one leisure trip over the next six months. Rising inflation might mean that consumers will make different choices when they travel, but demand still remains strong. As for group business travel, key statistics, such as a convention center booking increase of 13% in 2023 relative to 2022, point to a strong year for group travel.³ According to a survey conducted by American Express, 65% of respondents expect their spend on meetings and events to increase in 2023.⁴

Business travel recovery:
According to a recent survey by Morgan Stanley of global corporate travel managers, travel budgets are likely to be 98% of 2019 levels, with nearly half the respondents expecting an increase of budgets relative to 2019.⁵

China’s re-opening:
Before the pandemic, China was the world’s largest outbound travel market, with Chinese travelers taking 154 million trips and spending $255 billion.⁶ With the lifting of COVID-19 travel restrictions, Chinese travelers will begin to travel again in 2023. While there are still significant airline capacity constraints, there will be a measurable impact on both the domestic and international hospitality industries.

The rise of the digital nomad:
According to a recent EY survey of companies, 87% said that COVID-19 has had a profound effect on the workplace, with 72% saying that they now have a hybrid remote/office approach and 75% saying that they anticipate no central office in the foreseeable future. As these workplace trends take hold and people become untethered to their offices, these digital nomads will become even more mobile and will work from places where they want to travel.

Infrastructure Investment and Jobs Act:
Spending associated with the Infrastructure Investment and Jobs Act (IIJA) that was passed in the US in 2022 should lead to additional spending on hotels.

Boomerang workers?

During the pandemic, the hospitality industry lost much of its workforce as travel restrictions forced hotels to make severe staffing cuts. The industry’s unemployment rate leapt from 5.7% in February 2020 to 39.3% in April 2020, according to the U.S. Bureau of Labor Statistics (BLS).⁷ Many of these workers took jobs in the technology sector, which desperately needed to fill positions to keep up with sudden demand created by lifestyle changes that came about due to the pandemic.

Three years later, the world is adjusting again. While tech companies shed jobs in response to the state of the economy in 2023, the hospitality industry is now ready to hire in response to the expected increase in travel. One of the sectors that had the biggest job growth in December 2022 was travel and leisure. Hotels that have struggled to provide the same level of service and amenities they did prior to the pandemic may be able to fill some of these positions and get closer to full strength.

Bottom line: 2023 should be a good year for the travel and hospitality industry.