6 Themes for Hotel Earnings Season
Expect analysts in the next few weeks to be eyeing the group bookings recovery, Europe’s energy supply shock, hubris about property pipelines, currency turmoil, China’s fragility, and opportunities in lifestyle properties.
Public hotel companies will in the next few weeks report their financial performance for the third quarter, providing a glimpse at future trends. Following are a half-dozen topics likely to command the attention of hotel investors and owners.
Group bookings recovery
- Group bookings for meetings and events will be a number-one concern. Leisure travel led the recovery toward the pre-pandemic 2019 level. So any further growth for hotel revenue and profit may depend on a recovery in group business because it’s the category with room left to run.
- Most likely, hotel companies will report positive and promising signs for group bookings.
Europe’s energy shock
- An energy supply shock will lead to cost inflation for hotel operators, and the question is how much.
- At Paris-based giant Accor, energy typically accounts for about 8 percent of total costs but that could rise as high as 25 percent in a worst-case scenario, said CEO Sébastien Bazin at a conference in Italy on October 12.
Currency turmoil and talk of recessions
- The US dollar has steeply appreciated relative to the euro which will impact the results of hotel companies differently depending on where they collect their revenues.
- On the bright side, strong American tourism to Europe thanks partly to the buying power of the dollar has helped hoteliers on the continent.
- Companies will be affected depending on how much of their revenue or debt is denominated in a currency other than their own. For example, loans taken out in dollars have become more costly to service if most of your cash for repayment is in euros, which have weakened in value.
- One upside may appear for companies with a lot of inventory in the US that’s branded residences. Economic uncertainty may prompt some investors to seek to buy real estate in the US as a relatively resilient asset in terms of supply-and-demand aspects.
- Analysts are now forecasting recessions soon in several countries.
- “Global growth is forecast to slow from 6 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023,” the International Monetary Fund forecasted last week. “This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the Covid-19 pandemic.”
- Economic uncertainty may eventually bring headwinds for the post-pandemic recovery in hotel demand.
- Analysts will listen to executive commentary seeking clues about booking trends for the months ahead.
Hubris and denial about hotel pipelines
- Hotel pipelines are at, or near, all-time highs. But these development plans depend on a stable financing environment to keep the deals flowing.
- Can development continue at an uninterrupted torrid pace? After all, several financial markets are experiencing what’s essentially a “crisis in collateral,” to quote EuroIntelligence. Central bank actions and currency upheavals are shifting the value of bonds — indirectly upending many financial relationships that use bonds as collateral. It doesn’t matter if hotels are a stellar asset to invest in if real-estate partners or lenders are distracted by managing turmoil in the rest of their portfolios.
- I want the hotel industry to boom as much as anyone. But travel executives looking only at their data for bookings the next few months out aren’t seeing a long-term picture because refundable and semi-refundable bookings only provide a short window on trends .
- Some investors will find hotel companies attractively priced relative to other assets and their bets may pay off. Skift isn’t a financial publication. The broader issue is whether several hotel companies will take an adequately precautionary approach and a global, not US-biased, perspective.
- Many public hotel companies have declared an interest in adding more lifestyle properties to their portfolios. These properties often generate considerable revenue from their food-and-beverage and nightlife offerings, which lets them somewhat expand their customer base beyond guests to locals.
- Sharan Pasricha, founder and co-CEO of Ennismore, the Accor-backed lifestyle supergroup, heard a statistic a few months ago that he found directionally plausible. “About 2 percent of the branded hotels are lifestyle hotels, but almost 10 percent of those in construction are lifestyle hotels,” Pasricha said. Of course, definitions of “lifestyle” vary and no authority counts all of the hotels worldwide. But it’s generally conceded that a lot more money is to be made in lifestyle properties than public companies recently have been .
- Investors will be eyeing comments about their pipelines for hotel development and how companies are adjusting their mix to include more lifestyle inventory.
- Many industry observers, myself included, assumed that China would let go of its “zero-Covid” policy by the end of this year. Yet all signals so far are that lockdowns, quarantines, and border restrictions will remain in place through next year at least.
- “China never approved the use of mRNA vaccines deployed throughout the rest of the world,” reported the Washington Post last week. So even if China changes policy, there’s a high risk of disruptive outbreaks.
- Whether China changes policy or not in the next few months, Chinese travelers are unlikely to return to outbound visitation through 2023, predicted Daily Lodging Report.
- Destinations like Thailand that have depended on Chinese inbound tourism to fill hotel rooms will continue to see headwinds. In Thailand, many hotel projects are now on hold, and talk of overbuilding in coastal areas has become more common.
- The wisest long-term (meaning, 2023 and 2024) advice I heard last week was from Kristalina Georgieva, managing director of the International Monetary Fund (IMF), who described what the world was witnessing: “Shock upon shock upon shock,” Georgieva said. “We have to really work on changing our mindset to be much more precautionary and be prepared for much more uncertainty.”
What are you watching during the earnings season? I always read tips and feedback. Contact me at [email protected] or via my LinkedIn profile.