5 January 2023 | Market Insight, Data science, Rate Insight
2022 has been a year of mixed fortune for the hospitality industry. As we kickstart the new year and hoteliers begin to implement their 2023 roadmaps, it’s the perfect opportunity to look back on the last twelve months and reflect on some of the trends and developments that have shaped the hotel industry, and hotel revenue management in particular.
The pandemic was a black swan event that brought the world to a standstill, and travel to a complete halt. By November 2021, the world was beginning to reopen. Until the Omicron variant emerged. Travel plans were scuppered, restrictions reinforced and for the hotel industry, it was another setback, dashing all hopes of a holiday season surge in travel.
In this blog, we’ll be examining what’s happened since then. We will look into how recovery has transpired globally, how hoteliers have managed recovery and other notable industry trends of 2022 that have affected the hospitality sector and will likely continue to influence revenue management in 2023.
Here are our key learnings from 2022.
Table of Contents
Hotel occupancy picked back up
Hotel room prices reflected market recovery
Inflation, geo-politics and major events impacted room rates in 2022
Business travel was slow to return
It was a real balancing act for revenue managers in 2022
Confidence in travel returned, but with added complexities for revenue managers
Alternative lodging adds a further layer of complexity for hoteliers
The introduction of vaccines and the softening of restrictions brought about a surge in demand, and for destinations that were quick to open up, a booming era of travel. This meant that relative to 2020, and 2021, hotels in 2022 performed much better, though they were still below, 2019, the previous “normal” year of travel.
As it became clearer that restrictions would be lifted, week-on-week flight and hotel searches began to increase as consumers looked ahead to travel windows in the spring, and summer.
In the graph below, we can see that some destinations (São Paulo, Paris, Mumbai, Mexico City, London, Jakarta, Istanbul, Dubai and Amsterdam) have seen an increase in flight search volume compared to 2019. Others are still well below pre-pandemic levels.
Asian markets that reopened later saw a slower recovery. Flight searches to Beijing are 85% below what they were in 2019, while Hong Kong flight searches are 67% below 2019 levels. Search volume to Tokyo is 20% below what it was in 2019.
Flight search volume comparison for key global cities
Occupancy rates too showed an increase compared to previous years but were still below 2019 levels. The graph below shows average occupancies for the years 2019, 2020, 2021, and 2022. As we can see, occupancies have shown strong recoveries from previous years, but are still slightly below where they were in 2019.
Much of this is due to the fact that for the first quarter of the year, there were still travel restrictions in place, while Russia’s invasion of Ukraine also had an influence on travel sentiment. In the subsequent quarters, there was a much better performance overall, with some destinations (Berlin, Brussels, Istanbul, Orlando) on par with, or even out-performing 2019 occupancy levels.
Actualised occupancies in key global cities
Recovery was reflected too in hotel prices. The graph below shows the month-on-month percentage price difference between 2019 and 2022. We can see that many of the sample destinations were priced significantly below 2019 levels - especially at the beginning of the year.
Demand was predictably high as soon as lockdowns were lifted, and this clearly impacted pricing. Markets that took longer to reopen, such as Tokyo, were much slower to recover. As the year progressed, more and more markets moved above 2019 prices.
European destinations had a slow start to the year, but as soon as demand picked up in time for summer, prices too, increased.
Month-on-month percentage rate comparison between 2019 and 2022
While revenge travel was a factor in driving up prices in the post-pandemic recovery phase, inflation and the rising energy cost have also substantially impacted hotel room rates in 2022.
Inflation was already a factor in 2021 but became even more acute in 2022 as many economies opened up again.
The outbreak of war in Ukraine also placed a complicated strain on supply chains in many economies, including food prices and energy, which all have a trickle-down effect on hotel pricing.
Despite their overall occupancies remaining lower than 2019 levels, for most major European destinations we saw that prices were well above 2019 levels in response to the surging demand for travel. On the other hand, Asian markets have been slower to recover where hubs in Bangkok (-20%), Mumbai (-25%) and Tokyo (-52%) are all well below 2019 prices.
Major events have also influenced hotel prices in 2022, as seen during the FIFA World Cup in Qatar. Hotel prices in Qatar were as much as 500% higher than they were during the same period in 2019. COP27, hosted by Egypt in Sharm El Sheikh saw prices increase by 340% for the duration of the conference.
As Russian travel was curtailed, and Chinese outbound travel restricted, many destinations had to wait for other international markets to open up again as many traditional source markets were unable to contribute.
Business travel was slow to return, while domestic travel provided some relief. Major financial hubs have started to show signs of returning demand for business travel however, as observed through an increase in searches through Global Distribution Systems (GDS), which indicate the state of corporate travel.
GDS searches for hotels in Tokyo are as much as 21 times the volume they were at the start of the year - albeit from a low starting point.
Labour costs have also risen in the hotel sector, driven by excess demand and limited job market supply. Hoteliers have had to offer higher wages to fill vacancies, costs which are inevitably absorbed by the consumer.
However, an insatiable demand for ‘revenge travel,’ due to two years of restrictions has meant that inflation has yet to have a material impact on the consumer side of travel, despite the cost and uncertainty surrounding it. 2023, on the other hand, maybe a different story.
Along with market uncertainty, a lack of time, and the hiring and retention of staff were the biggest challenges facing hoteliers in 2022. A survey carried out by OTA Insight found that 68% of independent hoteliers were struggling with the changing market conditions. 39% of hoteliers are concerned about the staffing crisis, and 35% mentioned they lack the time in the day to manage all that they need to.
Revenue management has always been a balancing act, but the margins became even finer.
Revenge travel spurred the recovery in demand, pricing and occupancy levels, but hoteliers still had to grapple with a more competitive, more complex, and ultimately more complicated landscape.
The consumer changed as well. Booking lead times, lengths of stay and cancellation policies shifted throughout the year. While we may have moved past the era of travel restrictions, and more flexible cancellation policies, the global cancellation rate is still 28%, 3.6% higher than it was pre-pandemic. It was noticeable that in many destinations, hotels began using more and more non-refundable rates, and less semi-flexible rates in line with levels of demand.
Looking at the example below, we can see that in Seoul and Bangkok, the ratio of hotels using non-refundable rates has increased significantly through the course of the year. Once restrictions were lifted, confidence in travel grew - and with it, demand. In each destination, 10% fewer hotels were using semi-flexible rates than at the start of the year.
Evolution of the ratio of hotel using non-refundable room rates in Bangkok and Seoul in 2022
Consumers are using their mobile devices more and more in their daily lives, and the hotel booking process is no exception. But mobile booking discounts are more common in some markets than others. In some destinations in South America, notably Brazil, Colombia and Peru, more than 50% of hotels have implemented mobile booking discounts.
Leisure destinations in the Mediterranean have been using a mobile discount strategy. 44% of hotels on Rhodes island, for example, have a 5-10% discount on mobile bookings, while in Santorini 35% have a similar discount. On the other hand, just 6% of hotels in Las Vegas have a mobile discounting strategy in place.
Evolution of ratio of hotels using mobile booking discounts in Las Vegas, Lima and Rhodes in 2022
It’s also clear from the data that there is no one-size-fits-all approach to revenue management strategy in 2022. Hoteliers, therefore, need to be aware of what is happening in their local market and what their competitive set is doing at any given time
Added to the complexity of 2022 and understanding the competitive landscape has been the rise in alternative lodging, and the increasingly blurred lines between the hotel space and alternative lodging.
Growth in the supply of alternative lodging is a growth in the supply of accommodation and available rooms, which means more choices for the consumer. And, with professionally managed alternative accommodation, using similar hotel management standards, their guest experience offering attracts the same hotel guests.
In the eyes of the consumer, traditional compsets are no longer as fixed as they had previously been.
In Europe, alternative rental listings have increased from 5,559,151 units in January 2022, to 6,680,405 units in August 2022 - a 20% increase. In North America, supply increased by 30%.
ADR in alternative lodging has also increased from an average of $119 in 2019 to $146 in 2022.
This rise has likely been expedited by the pandemic when it was viewed as the safer option compared to crowded hotels. With business-leisure travel, or 'bleisure' travel as it is known, one of the lasting bi-products of the pandemic - alternative lodging can competes directly with hotels that have traditionally relied on business travel as one of their biggest performance drivers.
In the face of a looming recession, it is also often viewed as a cheaper option, where guests have the freedom to cater to their own needs and budget. In essence, hotels are now competing for the same guest and need to have a much more holistic view of their local market as they approach 2023 as this will likely have an impact on hotel performance.
From the Russian invasion of Ukraine to the cost of living crisis and rising inflation, there were significant struggles that the hotel industry had to navigate.
However, pent-up travel demand, where consumers were desperate to make up for lost vacation time caused by the pandemic, meant that room rates and hotel occupancy showed significantly positive signs. With some destinations returning to the highs of 2019.
In order to optimise performance, to ensure you remain competitive you should first implement an effective commercial strategy at your hotel. This starts with having the right software in place, powered by quality data. The OTA Insight commercial platform provides real-time insights into what is happening in your market.
You can act with speed and confidence, forecasting demand up to 365 days ahead with the help of a predictive market intelligence solution such as Market Insight.
Rate Insight also ensures you can price correctly, as it provides real-time rate intelligence on your compset, and across all OTAs and Meta sites. As well as insights into the promotional and discounting tactics of your competitors, so you can implement your own dynamic pricing strategy.
With the help of business intelligence solutions such as Revenue Insight, you can further analyse your performance after implementing pricing, marketing and sales strategies.
While the path to recovery for many markets around the world is ongoing, the hotel industry has shown resilience and adaptability in the face of unprecedented circumstances.
There is cause for optimism as demand remains high and consumers are receptive to travel - willing to prioritise travel above other activities. But, with disposable incomes tightening in many markets, and the operational costs of doing business increasing, any optimism must be tempered with caution.
Our upcoming 2023 trends blog piece will show you what to look out for in the year ahead.
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