Hospitality on the Road to Recovery
The hotel industry has made progress on the road to recovery from the effects of the COVID-19 pandemic, but in total, the sector is still reeling.
The hotel industry is projected to end 2021 down more than $59 billion in business travel revenue compared to 2019, according to a new report released by the American Hotel & Lodging Association and Kalibri Labs. That comes after losing nearly $49 billion in business travel revenue in 2020. Business travel is the hotel industry’s largest source of revenue and has been slow to return since the onset of the pandemic.
McKinsey & Co.’s partner and North America travel practice leader Vik Krishnan noted in a video in May that U.S. hotel occupancy has rebounded to about 65% of pre-COVID-19 levels, although room rates remain depressed. Leisure travel is driving the recovery, but revenue per available room is not projected to return to pre-pandemic levels until 2023 due to the slower recovery of business travel. Even so, the pipeline of new hotels under development remains healthy, Krishnan said.
Middle America is a bright spot of strong growth for hoteliers and insurance professionals serving this niche market, according to John Welty, president of SUITELIFE Underwriting Managers, a division of Ryan Specialty Group.
“In Middle America, you’re getting more boutique hotels, you’re getting higher end hotels, opening up,” he said.
The pandemic has pushed travelers away from larger cities, even along the coastlines, and that sent travelers seeking new destinations. “Travelers are still looking to stay in nice locations, so we’re seeing the hospitality industry respond by building more [hotels] in Middle America,” Welty said. “That’s where we’re seeing growth.”
When it comes to the insurance market, the hospitality sector remains tight, but there are a couple of carriers coming back into the marketplace in the high-end hotel segment, Welty said. “I’m not seeing any new markets come in but some of the markets that were there 18 months ago, are starting to come back, but they’re very selective on what they’re looking at,” he said. “It has to be an absolute perfect hotel for them to give a cover on it.”
Smaller hospitality risks, including the roadside limited-service hotel and motel sector, are a much different story. The market remains very tight for those classes of business, he added. “Roadside hotels are good hotels, but they just don’t have the same policies and procedures in place as actively as the larger facilities do.”
Larger chains and larger hotels often employ engineers and risk managers on staff, he added. “They have fully implemented safety policies and procedures, so they have very standardized human trafficking procedures, very standardized sexual abuse and molestation procedures in place, and they have cleaning protocols that are in place in light of the pandemic.”
Like all commercial property, hotels are seeing continued pressure in their property insurance. “We see property rates are still high, and that’s really due to the wildfire claims, catastrophe-exposed areas,” he said. “From a general liability standpoint, rate increases have decreased, but a lot of markets are still concerned with social inflation in the general liability field.”
In spite of today’s hospitality concerns, Welty remains optimistic. “There is great opportunity in the next 12 to 18 months for the hospitality industry,” he said. “When I look at the financial projections over the next 12 to 15 months, there is an increase in expected revenues, as well as the stabilization of expenses to run the hotel along with the employee workforce.”
He says hoteliers must be creative to succeed going forward. “If you’re going to fall back to how we used to do business in 2018 and ’19, you’re going to be left behind,” he said. “Those who are creative, and solutions-oriented, will get back to a more normal flow of business and be successful.”