Are The Times A Changin’?
Views and opinions expressed in this article are those of the author, not LG Electronics
The Present Will Later Be Past
“The outlook for hospitality has not improved. Occupancy remains flatlined, event cancelations continue to outpace bookings, the supply pipeline is falling, hotel closings are rising and the forecast for a full recovery has pushed out another year. The most dampening effect comes from the lack of business and group travel.”
Those words were written in October and never published. While a vaccine is being distributed and the drama and divisiveness of the US Presidential race has subsided, consumer confidence is rising and polls show that people have more desire to travel than ever. Yet as STR’s graph below shows, occupancy at the end of February 2021 is far too similar to June 2020.
Don’t Stand In The Doorway, Don’t Block Up The Hall
American Hotel & Lodging Association’s (AHLA) State of the Industry projects business travel to be down 85% through April 2021, then slowly return over a three-year period. Bill Gates thinks that over 50% of business travel will go away permanently on the basis that would-be corporate travelers have become accustomed to the disruptive impact of video conferencing.* Most prognostications believe Mr. Gates to be too pessimistic. Bernstein and Citi both predict business travel to peak at 75% of pre-pandemic volume. Credit Suisse expects an eventual return reaching 80%-90% of 2019.
The most recent MMGY Travel Intentions survey from December* showed 38% of business travelers responding with increasing optimism about “taking a business trip in the next six months.” Respondents have been growing increasingly optimistic since last July with current optimism nearly equal to the pre-pandemic mark of 41%. However, there is a cavernous disconnect between people’s positive outlooks and their relative inactivity. Even though MMGY’s respondents are only 3 percentage points lower than pre-pandemic optimism, the booking volume remains -70% below last year.
A McKinsey study suggested that business travelers are keen to hit the road but are limited by corporate travel policies.* In comparison, leisure travel was the first segment to resume and has been the most resilient throughout the pandemic year. It is not logical to think that one’s willingness to travel would change by trip purpose. Travelers who are comfortable boarding an airplane for a personal trip would not then be afraid to do the same for business. On March 20th, TSA heralded 10 consecutive days with over 1 million passengers for the first time in over a year. Kalibri Labs booking data for that same week shows corporate travel stagnation at -66% below last year. The behavioral difference may be less of a reflection of one’s willingness to travel so much as permission to do so.
The Slow One Now Will Later Be Fast
Entrenched fear however, should be a concern of the travel industry. An Economist survey shows that 17% of respondents believe they are likely to die from COVID, 100 times more than would mathematically occur. Fear may be the industry’s biggest foe. IATA brilliantly illustrated how rare COVID transmission is from flying (1 in 27 million)*. For comparison, an American is 50-times more likely to be struck by lightning than to catch COVID on an airplane. For all of the logic supporting the hospitality and travel industries, Deloitte analysis shows that “post-pandemic, 35% of consumers said they will eat out less at restaurants, 37% will fly less [and] 36% expect to have fewer hotel stays.”*
Good news itself may be both the catalyst and the remedy for hospitality. In the article “Shh, We’re On Vacation”*, the New York Times writer Sarah Firshein eloquently illustrates the change from when 80% of social media users’ most proud posts were of travel pictures to now when 50% of today’s travelers are sneaking out quietly to avoid travel shaming. Ketchum Travel’s survey was more draconian with 2/3 saying that they would judge others for travelling. In so many ways, the past year has felt like an episode of Black Mirror. Perhaps none more than seeing travel spiraling from people’s favorite way to present an image of themselves to a guilty pleasure that they feel the need to hide.
The Loser Now Will Be Later to Win
As offices remain mostly empty, the retail shops, restaurants and other small business that rely on those daily commuters are still suffering mightily. Many analysts believe that remote officing was a shift waiting for a disruptive moment. In the last year, workers have mainly lost leverage in terms of wages and benefits. One way that workers have gained an upper hand is through the life-balance that Working-From-Home (WFH) offers. Employees desiring increased flexibility know that they have a wide-open marketplace of employers who now embrace WFH if their current employer does not.
Business leaders have been forced to overcome a bias that home-workers would slack off. A study by Stanford has shown WFH to improve productivity by 13%.* With COVID quarantines challenging WFH biases, bosses with a fiduciary responsibility to investors must now defend the high costs of office space for the first time on a large scale. As office occupancy is likely then to decline, the businesses in the orbit of office buildings fear extinction as the 9–5 crowd may never return to 2019 levels. Landlords holding empty office and retail spaces represent a commercial real estate bubble. It follows then that hotels in these places would also have a dire outlook.
However, a white paper by CBRE posits another theory: a larger remote workforce will satiate their need for human-to-human connections through an increase in travel and conferences. They go further, suggesting that group and convention markets could reach greater levels than ever as the panic of the pandemic subsides. They expect working remotely to at least double pre-COVID levels in perpetuity. As telecommunications improvements make remote work increasingly effective, it still has gaps. As anyone who has attempted to pivot an event to virtual can attest, the engagement factor remains poor and with no meaningful solution on the way.
The same lack of meaningful connections that hamstrings virtual events is present in daily WFH environments. As more people operate in a “virtual office”, the lack of human connectivity, lower trust levels and reduced creative moments become exacerbated. CBRE concludes that “a more remote workforce will demand more in-person connection [that will be met] through business travel and conventions.” They cite statistical evidence by Choo et. al., who researched companies (pre COVID-19) that shifted their workforce to remote. The analysis found that “empirical results strongly support the hypothesis that telecommunications and travel are complimentary. As work from home increases, travel increases.”
If CBRE’s theory and analysis are right, the shift will still occur at a macro-economic pace- very very slowly. Unlike suburban residential real estate values which rose rapidly in 2020, owners of commercial real estate have been hesitant to sell while valuations were low. Renters of commercial real estate are often tied to long-term leases with stiff penalties for early departure so the shift may take years to unfold. Even this optimistic view of a larger group travel market than 2019 would take too long for many service industry businesses to survive.
Perhaps the most important underlying factor for optimism is that CBRE’s outlook matches the desires of employees and employers. Volumes of surveys show that people want to work from home. People like the extra productivity they get without commutes and the extra flexibility being home provides. Sometimes, they just like wearing sweatpants instead of suits. People also love to travel. Employers have the ultra-rare opportunity to improve morale by cutting a major cost. Even if half of the savings from rent is reallocated toward increased travel, corporate profitability would improve and employees gain two significant benefits- home-working and travel.
The Order is Rapidly Fading
In the scramble to find new revenue sources, many businesses are simply trading spaces. Last year as the meetings business collapsed, one of the most common strategies taken by the hotel community was to reposition empty guest rooms as work spaces. As a natural response, WeWork is transitioning its work space into meetings facilities in an “event reinvention” partnership with 360 Destination Group.
A resurging interest in America’s great outdoors was among the finest of 2020’s disruptions. The RV Industry Association published that suppliers are witnessing a 170% increase in first-time RV buyers.* For travelers seeking even more separation, Travel Pulse reports that Orbital Assembly Corporation will open the first space hotel in 2027; complete with spa, a concert venue and Earth viewing lounges. Work from home may have already been replaced by work-from-anywhere. “Schoolcation” and “workaction” have entered the travel vernacular as more specific versions of “bleisure.” Traditional segmentation is the only thing that has truly died. A micro focus on the habits and desires of every customer is today’s best strategy for customer acquisition.
When downtowns became ghost-towns, boom-towns became zoom-towns. While Amsterdam is trying to reduce marijuana-tourism, America’s Bud & Breakfasts are blooming — the new NORML will not be static.
Other sources:
Deloitte: Perception of Travel Safety Up, Spending Intent at Pandemic High (lodgingmagazine.com)
https://www.nytimes.com/2020/08/14/travel/virus-secret-vacations.html
Corporate travel: companies by booked air volume US 2019 | Statista
Surprising Working From Home Productivity Statistics (2021) (apollotechnical.com)
State of the Industry.pdf (ahla.com)
US Has 10 Consecutive Days of 1 Million Air Passengers | TravelPulse
