Live from Hunter: strong balance sheets should help weather storms

Industry leaders are gathering in Atlanta this week for the Hunter Hotel Investment Conference during lingering financial uncertainty – this time in the form of banking insolvency and as yet tamed inflation. You’d think it would be a recipe for trepidation and pessimism. Such is not the case.

A panel of future c-suite leaders boasted about solid performance and ability to still make deals with the help of relationship bankers. Yes, there is some spottiness with markets like San Francisco still running 20% behind 2019 comps. But in the next breath they referred to incredible strength in Florida. At the end of the day, inflation is eating into profits, but panelists such as Stewart Heath of OTO Development and Blake Heiman of TGC Group agreed that they are still matching 2019 levels.

Then there were bullish predictions from Tourism Economics President Adam Sacks, who said that while inflation is leaving a mark on the psyche of American consumer and inflation is muting growth in real personal income as the economy heads into a period of weakness, both consumers and corporations have enough of a financial war chest to weather the storm.

Sacks is predicting a mild recession in the second half of this year (-3.7% GDP in Q3 and less than -1% GDP in Q4), but cash on hand will make this recession different, especially when it comes to travel and tourism.

He said demand and pricing power will be in position to defy a traditional downturn. Households are in a position of strength and have money for travel. He added that inflation is likely to moderate and supply chain increases will all but evaporate to help defray cost increases.

Yes, pent-up demand and the prioritization of travel is still a thing. He expects the momentum and ongoing interest in travel will soften any mild recessionary blows. He also cited how spending on services and experiences continue to take share from spending on goods. For the next six months, plans to travel remain at a very high level.

Sacks also pointed to the ongoing impact of remote and hybrid work providing further momentum for hoteliers, citing data that suggests 34% of people plan to travel while working in next 12 to 24 months. “This market didn’t really exist three years ago, and it continues to grow – it’s a new normal,” he said.

If that wasn’t enough to give you comfort about near-term performance, Sacks added that businesses are still restoring and rebuilding necessary travel, suggesting business travel intent now slightly exceeds 2019 levels.

Then there is inbound international travel, which is just starting to ramp up. Sacks said inbound is 73% recovered through February 2023 and should continue to grow. Worthy of note: inbound travel from Asia is only 49% recovered, which offers a lot of upside in the months ahead and into 2024.

Hotel demand and GDP performance historically are coupled – but not this time, Sacks concluded. Despite a pending mild recession in the second half of 2023, he predicted room demand will continue to eek out gains, even as economy contracts.