Michael Bellisario, a senior research analyst at financial services company Baird, joined Cheddar News to discuss the state of the hospitality industry. Despite persistent labor shortages, demand for hotel rooms is expected to reach 63.4 percent, with revenue projected to reach $168 billion. "We like to say there's just a lot more supply of travel options that you and I have, for example," he said. "We're in the office. We're traveling for work more, and now importantly you can also go to Europe. And you can go to Europe on sale, to go on a cruise if you want to go to the Caribbean."

Opening Bell

Hospitality Industry Continues to Be on the Rebound Despite Staffing Shortages

Here to discuss is Michael Bellisario, senior research analyst at Baird. Michael. Glad to have you on this morning when we look at the hotel industry, obviously there's medic categories, recreation, lodging, entertainment, food and beverages. Let's talk specifically about lodging. How has the hospitality industry changed or the changes that have seen since 2020. Perfect. Good morning. Thank you for having me. Uh, I think the big takeaway is that people are traveling today. They're just traveling to different markets for different purposes uh in different days of the week. Um There's a lot more leisure and there's still a lot less last minute business travel that's occurring, especially in the urban gateway markets. But the trend is definitely a friend here and people are out on the road and traveling today Has the uptick in that, in that travel, you know, leisure space been enough to subsidize, you know, the steady declines and, and the still persistent declines, you know, relative to 2019 levels on the business travel side. Uh Yes and no, it if you're a hotel owner, it depends where you own the hotel. The best performing markets today are still resorts and drive to locations. If you're close to a beach, those hotels could be performing at 1.5 to 2 x uh, 2019 performance levels. And if you own A big box convention hotel in an urban gateway market, you could still be 20, plus below where you were operating in 2019. So it really depends on the market and the customer segmentation. It's been a very bifurcated recovery the last two plus years is their originality components into that. You know, our overall kind of hotels in certain regions seeing um you know better rates as opposed to others. Well right across the board is up, if you look in july or even in the last few weeks in august in the U. S. Total demand is still down a couple of percentage points versus 2019 levels. It's really right. And that's, it's true for airlines, it's true for a lot of businesses uh plus or minus 15% and it's up more for the better performing hotels in the drive to and resort locations. But what we are seeing two now is next week post labor day kids are back in school travel patterns continue to normalize. We like to say there's just a lot more supply of travel options that you and I have for example, were in the office were traveling for work more and now importantly you can also go to europe and you can go to europe on sale to go on a cruise if you want to go to the caribbean. So I think people have generally had their fill of getting in the car and driving four or six hours and going to the beach or going to Hilton head or somewhere that they may have not, never gone before because that was the only game in town in 2020 and 2021 is the world has opened up and options have increased the overall demand. Pie is broadening to different locations, you actually speak to something I want to jump on right now. We look at the pandemic, it did spark this rise in domestic travel because it was the only option, the only way to get out. And so we saw a lot of hotels, you know benefiting off potentially longer stays and people you know remote working out of a hotel or resort, How have things changed this year, in terms of the length of stays, length of stay is up. Some of that is because of mix shift pre pandemic roundly if it was a day and a half, average day today it's closer to two days. Uh I think when you think about a traditional business traveler, that person is still staying one night or two nights, it's really the leisure traveler that is three nights, five nights and leisure travel as a percentage of the total demand high is so there is mix shift affecting that, but I think the biggest change and maybe the biggest structural change that lasts at least for the time being is pick a wedding. For example, if you're going somewhere instead of flying there on friday and staying at a hotel friday and saturday night, not a lot of people can go thursday and work remotely friday. So you see the extended weekend sort of the blended trip occasion, that's really what's driving the increased length of states, particularly on the weekends, while there is this increased demand, it seems like, especially as we talk about the summer of events travel and everyone trying to get their fill that they haven't had, you know, over the last two years when it comes to travel. One of the things that I have even noticed personally is staffing levels being lower, especially when you look at other divisions besides lodging within the hotel's event spaces. Someone who planned a wedding this year and I was looking at Spaces and the staffing shortages on the food and beverage side. Those were like conversations I was having openly with hotels and they were very candid. That's an issue. We just cited, 97% of hotels are reporting still having these staffing shortages. What can be done do you think to improve the staffing issues that hotels are still dealing with amid a surge in demand? Well, staffing across the board has been an issue. It's been a challenge for hotel owners and the brands too. And it's led to lower guest satisfaction satisfaction scores. Uh, it's really in housekeeping and then food and beverage. One thing that we have seen, this is not unique to hotels is wages are going up in order to incentivize people to, to come work at a property or come work at a at a hotel. Um, There is a bit of a silver lining though with less labor, less uh, availability of labor. Hotel owners are actually benefiting on the bottom line because you and I, when, if we're traveling somewhere, we're checking in, we're paying the rate, We don't know that the restaurant might be closed or have limited hours or slow service. So there is a bit of a silver lining. All hotel owners, hotel brands that want to continue to step up, especially as group and convention and conference business comes back. But for the time being, it's a challenge. And really right now the solution is higher wages and then also immigration has impacted the availability of hotel labor in the last couple of years. To Michael wanted to let you go here. I've got less than a minute, but I'm curious what's your overall outlook on the hotel industry for the remainder of the year? And what hotel brands do you think our position the best to whether, you know, continued inflationary pressures and potentially the changing consumer preferences. Yeah, the outlook is still good, as I said at the beginning, that the trend is your friend here, people are still traveling. Um, and the shift from goods to services spending has certainly helped hotel demand. We think that continues. And when we look at the brands, in terms of Marriott, Hilton and Hyatt, the three biggest global hotel brands that we cover, they're all very well positioned. We like Hilton the best, it's sort of the steadiest performer, they're returning a bunch of capital to shareholders and it's, it's asset light model is generating a lot of returns and high incremental returns. But they're all positioned very well and they're continuing to grow not only in the United States but also globally too. So they're all positioned very well today. Michael really appreciate your time and your insight, Michael Bellisario, See your research analyst at Bear.