What will it take for business travel to recover fully?

DALLAS — Hospitality executives admit that the optimistic projections for business travel at the start of 2024 have so far not materialized and still aren’t back to 2019 numbers. “Business travel has shifted,” said Miraj Patel, chairman of AAHOA and president of Houston-based Wayside Investment Group. “That’s primarily because corporate America is just not back to where it used to be.”

But Patel, who participated in a Views from Boardroom panel at ALIS Summer Update at the Kimpton Pittman Hotel Dallas on July 25, sees a solution. “We have to do a better job of pushing that travel and getting back to the reality that work from home is not going to be a thing anymore… How do we shift gears to get everybody back to business travel?” Patel asked.

“Together as an industry, we have to push for the business traveler to return to where it used to be,” Patel continued. “That includes brand partners and everybody working together to get that shift back to what it was and hoping that it would return to that 2019 number.”

Others on the panel included Jolyon Bulley, CEO of Americas, IHG Hotels & Resorts; Sloan Dean, CEO of Dallas-based Remington Hospitality; Craig Smith, CEO of Plano, Texas-based Aimbridge Hospitality; and Patel. Jeff Higley, president of The BHN Group, was the moderator.

We saw ourselves coming into the winter, and the slowdown was in that sort of midscale leisure market, and that proved true during the first quarter of the year… The luxury lifestyle segment is booming. There’s no resistance to price, demand, or economic indicators.

Jolyon Bulley

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Bulley said the data tells two different stories about the industry's general health: the luxury and lifestyle segments show no signs of slowing down but a softening in the lower segments, particularly midscale.

“We didn’t agree with some of the forecasts being published (at the beginning of the year) because of what we’ve seen, particularly in the midscale segments and a softer Q4 last year,” he said. “We saw ourselves coming into the winter, and the slowdown was in that sort of midscale leisure market, and that proved true during the first quarter of the year… The luxury lifestyle segment is booming. There’s no resistance to price, demand, or economic indicators.”

Bulley said IHG is hearing some pushback for extra business travel. “A lot of companies that we deal with are saying business travel is good, and the markets are good, but they need to contain that discretionary travel.”

Dean said some of the disparity between the performance of high-end segments and their midscale counterparts can be explained by who benefits from inflation. “If you look at it from a consumer perspective… the people that stay in upscale/upper upscale luxury hotels, they have assets, and inflation has benefited them. They’re large shareholders, and their primary residence has a fixed-rate mortgage below 3%,” he said. “If you look at where inflation has really hurt, it is the midscale and economy traveler. That’s why you see some of those segments underperforming, which will be the norm. It’s why I think upscale this year is projected to be one of the best-performing segments.”

Smith said he thinks of different lines of business like tides. “The fastest tide that’s coming in, obviously, is group. It’s been great. Incentive group bookings are doing very well because the economy’s doing well… Big association groups are booking, and they’re booking further out. It was a little bit of waiting and seeing with them,” he said. “With business travel, the tides are coming in, but they are coming in slower. It’s not as fast as we’d like, but the rates are still pretty decent.”

Challenges facing hotels

Patel said it's important for the hotel industry to unite because of the many regulatory challenges it is currently facing, especially at the state level, like a proposed New York City Council bill that hotel lobbying groups are currently fighting against.

It’s about uniting. I think many organizations out there, like our partners at AHLA and many of our state partners, are coming together as an industry and working together around regulation. Because ridiculous regulations are occurring, making it really hard for an owner to operate a hotel.

Miraj Patel

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“It’s about uniting. I think many organizations out there, like our partners at AHLA and many of our state partners, are coming together as an industry and working together around regulation,” Patel said. “Because ridiculous regulations are occurring, making it really hard for an owner to operate a hotel.

“So, many decisions are being made at the state level without even having dialogue with folks from the lodging industry. And that’s what’s become the difficult component. How do we come together to ensure the messaging is the same? It’s not a competition, because we’re all advocating for one thing, and that’s a better business environment for the lodging industry. How do we educate the government on the state, federal, and local levels to at least have conversations with us before making any decisions that make it hard for us to operate hotels?”

Another issue hitting hotels hard right now is the PIP crisis. Many hotel owners in an “extend and pretend” phase are coming up on brand-mandated improvement deadlines for their hotels.

Bulley said it is forcing major brands like IHG to reevaluate every aspect of the owner life cycle. “Many hotels are well and truly over their PIP cycle… What we’ve been continually looking at is the owner’s life cycle — the cost to build, the cost to open, the cost to operate and the cost to renovate. We’ve spent a lot of time improving the economics during each life cycle stage.

“It takes significant cost out of the business and focus on standards that matter… Then look at areas that increase productivity in hotels from the labor point of view… But also making sure that the categories of our standards are eased to understand the economics of it,” he said.

What about AI?

When answering an audience question about artificial intelligence in the hospitality industry, Smith said he’s reluctant to consider it an all-inclusive solution.

“There are areas where AI is going to help us. It’s going to help in revenue management. It’s going to help us make decisions,” he said. “One of the things that’s happening now is clients are getting used to checking themselves in… I think there are areas that will help bring down our labor cost. But I don’t want to overthink it.”

Dean said hoteliers can use the tactile nature of their jobs as a recruiting tool, as well. “One of the things that helps us recruit people, either when they’re coming out of high school or college, is that we’re in business that’s going to be harder to automate,” he said. “It’s not going to solve the labor crunch, but it will increase productivity and bring down maybe some undistributed expense… It’s a way to recruit talent into the industry and say 'we’re a very physical business and part of the human experience to physically travel to this place and interact with humans.'

“That’s one of the things we can use to drive down labor costs. We’re going to see jobs completely replaced by AI, but I think it’s going to be on the fringes for hotels because we’re still very dependent on physical labor at the unit level.”