‘Rating’ The Recovery
Economist Sacks Offers Dose Of Optimism During Hunter Conference
While acknowledging some headwinds—particularly when it comes to inflation and rising gas prices—economist Adam Sacks earlier this week delivered a decidedly upbeat message to hoteliers as it relates to the ongoing recovery touting steady gains in room demand, as well as average daily rate, as key factors.
Sacks—who is president of Tourism Economics—addressed the industry at the Hunter Conference, which took place at the Marriott Marquis in Atlanta, during a session entitled “Navigating The Perilous Road To Recovery.”
Sacks cited some reasons for optimism, while also acknowledging some of the macroeconomic challenges ahead.
“Domestic travel is going to continue to drive this recovery, we see continued strength in that market, as well as ADR [average daily rate] gains. That’s where our opportunity remains. Those gains are impressive and they will continue to be impressive, but it’s going to be tough to keep up with inflation,” he said.
Further detailing some of the macroeconomic trends, Sacks noted that Tourism Economics is projecting GDP growth to continue to slow, coming in at 3.4 percent this year, which is down from last year’s 5.7 percent. The company projects that number to further decline to 2.1 percent in 2023.
Meanwhile, Sacks talked about the potential impact of gas prices referencing a recent company poll in which some 34 percent of respondents said they were planning to reduce the number of trips they went on. Similarly, 33 percent said they were choosing destinations close to home. Sacks, however, emphasized that consumers don’t historically act on how they respond to polls. Furthermore, while COVID remains a factor influencing travel, the situation is improving, according to Sacks.
Despite some of the aforementioned headwinds, Sacks had plenty of positive news to report. For example, he noted in terms of room demand the industry came within 4 percent of 2019 levels in the fourth quarter of 2021 and is expected to surpass 2019 levels in the second quarter of this year.
In addition, Sacks emphasized the importance of rate in the recovery and pointed out that ADR is expected to fully recover in the summer of 2022 and exceed 2019 levels.
“This is cause for its own celebration. This downturn in terms of rate is unlike anything we’ve ever experienced as an industry. Revenue managers have done an incredibly good job during this downturn,” he said.
Sacks continued, “We’ve never before seen a situation where rate has recovered before demand and that’s what we’re experiencing right now. In fact, what we usually see is that rate takes at least a year after occupancy fully recovers to come back. So rate in this regard has been a star performer across markets.”
While Sacks acknowledged business travel continues to lag a bit, he remains generally bullish on its future.
“I think a good expectation is that as we look to the second, third, and fourth quarter we’re going to be off on group nights about 20%. But we’re going to build from there because of momentum and the importance of being face-to-face is not going away,” he said.
Sacks concluded by offering a nod to hoteliers in the room for enduring the significant challenges of the past two years.
“I think it’s not a far-fetched idea to say that the hotel industry are the heroes of the story. You persevered against incredible odds and dark days indeed and here you are not just surviving, but prospering as well and well done,” he noted.