Public distribution of the vaccine remains a critical step for restoring occupancy levels in the short term, but adjusting to the potential structural changes imposed by the pandemic will be key to long-term recovery. The future of group and business travel is in question, given the rapid adoption of virtual working methods seen during the pandemic. The Barclays Business Travel Survey published in October estimates that up to 34% of pre-COVID-19 business travel could be permanently replaced by technology, and even a fraction of this estimated loss level could have devastating consequences for group- and business-oriented hospitality properties.
How do we calculate hotel forecasting now?
In light of the unforeseen and uneven impacts to demand caused by COVID-19, evaluating strategic decisions for hospitality assets requires a complete re-imagination of hotel forecasting. Whether evaluating an acquisition, disposition, timing of deferred capital expenditures, lender negotiations, asset management, or valuation and highest and best use decisions, the COVID-19 pandemic has forced the hospitality sector to adopt a new perspective in estimating top-line results.
Traditional forecasting methodologies do not quantify the unique impacts of the pandemic, such as the pace of business travel recovery, product type characteristics or permanent losses from group business due to virtual alternatives. Therefore, accurately forecasting demand at an individual hotel property requires both a macro, top-down view that is then compared to a bottom-up, asset-level detailed analysis.
Proprietary economic forecasts and data-driven forecasting model for the hospitality sector
Top-down macro view
From a macro perspective, traditional forecasting models are no longer reliable, explains Nigel Gault, Chief Economist of EY-Parthenon, the EY organization’s management consulting practice that provides economic forecasting and analysis.
“Pre-COVID-19, real disposable income and real household wealth were drivers of tourism, with GDP as a proxy for business demand, and this was part of the demand forecasting model,” Gault says. “COVID-19 has changed everything and added many variables that didn’t exist before. Now, we aren’t sure people even can spend on hotels, business travel is practically zero and consumers from all demographics and markets have a general fear of traveling because of the global pandemic.”
To accurately capture macro views of the hospitality sector, Nigel further urges abandoning outdated methods.