Long-Term global lodging recovery outlook upheld
The easing of travel bans in the US and UK is positive but will not fast track the global lodging recovery, due to restrictions in other countries, a low worldwide vaccination rate and the likely slow return of business travel, says Fitch Ratings.
“We maintain our long-term sector recovery trajectory, with revenue per available room (RevPAR) reaching 2019 pre-pandemic levels by 2025 as vaccinations increase, safety concerns ease and business travel improves,” Fitch said. Approximately 55% and 68% of the population in the US and UK, respectively, were fully vaccinated as of Sept. 20, according to Our World in Data, but the worldwide vaccination rate remains low at 32%. This rate is up from less than 10% at the end of June.
Additional progress is likely over time due to vaccination mandates, greater access for developing countries and potential near-term availability of Pfizer’s vaccine for young school age children. The easing of restrictions is neutral to ratings as home country staycations are likely to remain popular among travellers in 2021. Still, globally diverse European lodging companies should benefit more from border re-openings than domestic US hotel issuers, whose sales are primarily driven by regional and leisure traffic.
The US announced plans this week to allow foreign nationals from certain countries in Europe, Asia, the Middle East, Africa and Latin America to enter the US with proof of vaccination and a negative Covid-19 test taken three days prior to air travel beginning in November. Many countries in these regions have already reopened their borders to fully vaccinated Americans, with the UK being one of the latest in early August.
However, dozens of other countries continue to ban noncitizens, and the travel status of those with open borders can change suddenly, due to uncertainty regarding the course of the pandemic as new variants spread. According to the World Tourism Organization’s Destination Tracker, 45% of Asia, 28% of Europe, 21% of the Middle East, 13% of the Americas and 4% of Africa had restrictions on entry for air travel in place as of Sept. 21. The global lodging sector’s recovery is in progress, but the pace has varied across regions, with Europe lagging other areas.
New waves of Covid-19 infections led to further lockdowns and travel restrictions across Europe, with June YTD RevPAR reaching its lowest level since the start of the pandemic, at around 80% lower than the pre-pandemic level, and only starting to recover during summer 2021 due to recovering room rates and domestic demand.
Conversely, strong summer leisure travel in the US caused Fitch to raise expectations for 2021 RevPAR to 68% of the 2019 prepandemic level, compared with our previous forecast of 62%. Fitch expects the RevPAR recovery to converge to around 80%–85% of 2019 prepandemic levels globally in 2022, despite the divergence YTD 2021, with improvement continuing for all regions through 2025. The trend of lower price-point economy and the midscale segment outperforming upscale segments is expected to continue while international and corporate travel remain weak.
Business travel continues to be down since the onset of the pandemic, as most companies have suspended non-essential business trips and reduced convention activity. Fitch believes there is some appetite for in-person meetings, but a secular trend toward remote work, the success of video conferencing during the health crisis and post-pandemic cost-saving programs will likely result in a slow recovery in business travel.