11th Mar 2022
Changes in the hospitality market
The COVID-19 pandemic has hit the entire travel industry hard, but business travel is one of the sub-sections that has been most impacted. According to the American Hotel and Lodging Association (AHLA), although business travelers made up 52.5% of industry room revenue in 2019, business travel was practically non-existent in 20201. Although business travel did rebound somewhat in 2021, the Omicron variant again put the brakes on this field. According to the AHLA, business travel is projected to represent just 43.6% of the industry revenue in 20222.
Unlike leisure travel, where each surge of the pandemic has created pent-up demand, the change in business travel habits is showing signs of permanence. In a 2021 survey by Bloomberg of 45 large businesses in the US, Europe, and Asia, 84% of respondents stated that their companies plan to spend less on travel post-pandemic3. According to survey data, the change is driven primarily by two factors. The first is a simple calculation of return on investment. During the pandemic, many businesses saw that the forced drop in travel did not lead to a parallel drop in productivity.4 Therefore, they are in no hurry to return to the significant expenses of business travel, even when the pandemic wanes. Another influencing factor is that businesses are under increasing pressure from investors and regulators to significantly reduce their CO2 emissions5. Minimizing travel is a key part of that effort.
Facing the changing market landscape, hotels are looking for new ways to monetize their assets and reduce the dependence on business travel, especially on weekdays when business travelers often made up the majority of hotel guests. This has led to a wave of innovation in the hotel industry. Non-room products and services including bars, restaurants, spa packages, and other activities for local residents are increasingly becoming a focus for hotels, as are co-working spaces and alternative types of stays including long-term lodging.
Serving local communities
With business travel down and continued uncertainty about international travel, hotel owners and industry leaders are increasingly looking for ways in which hotels can serve the local community. Their unique infrastructure that often includes both private and public rooms, food and beverage services, and leisure options make hotels uniquely positioned to serve a variety of dynamic uses and needs.
For example, hotels can provide services to local small business owners by offering a venue for pop-up events including art shows, local designer clothes and jewelry sales, and exciting culinary events. Hotels can also offer event services to local clientele–everything from a gathering place for religious communities to a venue for birthday parties and other celebrations. Offering services to local communities is a win-win proposition–hotels gain a more stable client base, and local entrepreneurs and community members benefit from expanded options for local events and entertainment.
Coworking spaces for a hybrid workforce
Coworking burst into the public consciousness with WeWork, but as the concept grew in popularity, so did the possibilities of what could be considered a coworking space. Entrepreneurs and workers alike realized that they were no longer constrained to dedicated office spaces–any place with comfortable chairs and good WiFi could be used for coworking. In fact, they discovered that many remote workers prefer authentic, multi-purpose local spaces to the more sterile atmosphere of a planned coworking venue.
During the pandemic more workers transferred to remote work, driving the demand for coworking options. Hotels are capitalizing on this trend to make up on lost revenue from business travel on weekdays when there are fewer leisure travelers. Hotel rooms can be used as temporary offices for remote workers who need a change of scenery from their kitchen tables, or a quiet respite far away from children in online school, complete with meals and drinks delivered via room service. Hotel lobbies, bars, and restaurants can also be repurposed as working spaces, especially on weekdays when they are underutilized by traditional hotel guests.
Many experts are now predicting that even after the pandemic, remote, hybrid, and flexible work options will continue to remain the norm. In fact, a new McKinsey survey of 100 executives from various industries and geographies predicts that nine out of ten organizations will be combining remote and on-site working after the pandemic6. Hotels with coworking options are uniquely positioned to benefit from this trend.
Long-term stays for digital nomads and “workations”
Just as remote work has blurred the lines between work and home, it has also blurred the lines between travel and living. During the pandemic, for many people work was untethered from a specific location. It no longer made sense to pay sky-high rents for cramped spaces in the most expensive cities and remote workers began looking for alternatives. For example, instead of seeing travel as something that could be done only during a limited number of vacation days, it became a possible lifestyle choice known as digital nomadism.
Digital nomadism was trending before the pandemic, but the pandemic gave the phenomenon a boost. Basically, digital nomads are remote workers who travel as a lifestyle. Generally maintaining only minimal possessions, they move from place to place, working from coffee shops, public spaces, or coworking venues, and spend their non-working hours enjoying the local culture and sights, wherever they are. While some digital nomads have mobile accommodations like an RV or converted school bus, the majority rely on temporary accommodation.
“Workations” are also increasingly popular, combining business and pleasure in the short term. The idea behind a workation is that rather than taking a limited amount of vacation days at an attractive site, remote workers can spend more time in the vacation locale but combine work and leisure while they are there. Hotels have been quick to adapt their offerings to the needs of workationers. For example, the Hyatt chain is offering “Work from Hyatt”, packages of work and leisure amenities for extended stays at a variety of locations7.
The numbers show that the trend towards digital nomadism and workations is driving a demand for long-term stay options in the hospitality industry. For example, in Airbnb’s Q3 report in 2021, stays of 28 days or more were the fastest-growing category by trip length. They made up 20% of the nights booked on Airbnb in Q3 2021, compared to 14% in Q3 20198. Hotels are also seeing an uptick in longer-term stays, and increasingly offering amenities to meet the needs of long-term working travelers like in-room kitchenettes and meal plans.
Could it be a good time to invest in travel?
The travel industry hasn’t returned to 2019 revenues yet, and as the virus surges and recedes, the travel market is still suppressed. Suppressed markets offer unique potential for growth, especially as hotels and other travel providers are increasingly able to navigate the changing market by creating innovative hybrid and adaptable offerings. Therefore, travel stocks in general, and hotel stocks in particular, show significant potential in 2022 and beyond. However, it’s hard to know which travel stocks to buy and where to best invest. Defiance’s CRUZ Exchange-Traded Fund (“ETF”) offers an alternative to trying to bet on the winning travel horse. As an ETF, you can buy and sell it like a stock, but its net asset value is linked to the value of its composite stocks, which in this case seeks to track an index of global companies that derive at least 50% of their revenue from airline stocks, hotel stocks, and cruise stocks. It is positioned to capture potential growth in the hotel industry and enables exposure to this sector while mitigating the risk of investing in any individual stock.
For current performance and holdings, please visit defianceetfs.com/CRUZ
1 “AHLA State of the Hotel Industry Report 2021”, January 21, 2021 https://www.ahla.com/sites/default/files/2021_state_of_the_industry_0.pdf
2 “AHLA State of the Hotel Industry Report 2022”, January 2022 https://www.ahla.com/sites/default/files/AHLA%20SOTI%20Report%202022%201.24.22.pdf
3 “‘Forever Changed’: CEOs Are Dooming Business Travel — Maybe for Good”, September 1, 2021, https://www.bloomberg.com/news/features/2021-08-31/will-business-travel-come-back-data-show-air-hotel-travel-forever-changed
4 “‘Forever Changed’: CEOs Are Dooming Business Travel — Maybe for Good”, September 1, 2021, https://www.bloomberg.com/news/features/2021-08-31/will-business-travel-come-back-data-show-air-hotel-travel-forever-changed
5 “‘Forever Changed’: CEOs Are Dooming Business Travel — Maybe for Good”, September 1, 2021, https://www.bloomberg.com/news/features/2021-08-31/will-business-travel-come-back-data-show-air-hotel-travel-forever-changed
6 “What executives are saying about the future of hybrid work”, May 17, 2021 https://www.mckinsey.com/business-functions/people-and-organizational-performance/our-insights/what-executives-are-saying-about-the-future-of-hybrid-work
8 “Airbnb third quarter financial results 2021”, November 4, 2021, https://news.airbnb.com/airbnb-third-quarter-2021-financial-results/