Americans’ Summer Trips Abroad Reshaped Demand For Hotel Giants

Crowds of American tourists this summer filled the streets of European and Asian cities, with many branching out after three pandemic-era years of vacationing closer to home. 

This shift of American travel patterns had a big impact on hospitality markets and the multibillion-dollar companies that own and operate hotels, with some profiting from the trend while others felt the pain.

The giants like Marriott and Hilton that have hotels in travel destinations across the globe reported strong earnings last quarter, as they benefited from this boost in demand. But the real estate investment trusts that largely limit their portfolios to the U.S. revealed a different picture: declining revenues at many resort hotels. 

The reports came after CBRE in August lowered its projections for domestic hotel performance, citing weaker-than-expected summer demand and a shift in consumer preferences to more overseas travel. Travel data from Labor Day weekend showed international hotel and airfare bookings were up 44% year-over-year, with top destinations being Vancouver, Rome, London, Dublin and Paris, according to AAA, while domestic bookings only rose 4%.

This trend meaningfully impacted the business of many U.S.-based hotel giants, with executives on earnings calls during the last two weeks saying they see hotel demand pouring out of the country to other parts of the world.

“The revenge travel related to outbound international and cruising this year seems to have overwhelmed improving demand in business travel and international inbound travelers,” Pebblebrook Hotel Trust CEO Jon Bortz said on the company's Q3 earnings call. “The leisure softness has primarily been reflected at resorts, while urban weekend occupancies have continued to recover.”

Pebblebrook, a REIT that owns 47 hotels totaling more than 12,000 rooms located exclusively in the U.S., reported a net loss of $56.5M last quarter. The company saw a 3% increase in revenue per available room, a key hotel metric, at its urban hotels, but that was offset by a 10.2% drop in RevPAR at its resort hotels. 

The drop in U.S. resort revenue for hotel owners comes in part because 2022 was stronger than even the year before the pandemic. DiamondRock Hospitality, which owns 36 hotel properties in the U.S., said RevPAR at its resort portfolio was down 8.2% from last year, but it was still up 24% from 2019. 

“We’re starting to establish the new normal patterns this year on that,” DiamondRock CEO Mark Brugger said on the company's earnings call. “So certainly, there’s some Florida fatigue. ... They’re remaining better than they were pre-pandemic, but they’re coming down into, I think, more sustainable levels that we can build on going forward."

For REITs that focus their portfolios in urban markets like RLJ Lodging Trust, the overseas shift in summer vacation demand didn't hurt as much. Urban hotels benefited from major concert tours by the likes of Beyoncé and Taylor Swift, who sold out local hotels and boosted rates. Swift's Eras Tour added $98.2M in room revenue to U.S. hotels during its first three months, STR reported in June.

RLJ’s urban-centric portfolio saw a 3.4% boost in RevPAR, with a high in September of 6.9%, according to the REIT's earnings report. RLJ CEO Leslie Hale said that strong attendance at concerts played a part in urban weekend RevPAR increasing by 4% in the quarter.

“While resorts continued to normalize during the quarter for the industry, our leisure segment outperformed due to the ongoing strength in urban leisure, which benefited from strong attendance at various concerts as well as sporting events,” Hale said on the REIT's Q3 earnings call. 

Giants like Hilton Worldwide, Marriott International and Hyatt have hotels around the world, which helped them capture the demand from American vacations shifting overseas. 

Marriott's RevPAR jumped 8.8% overall jump from last year, with its international portfolio's RevPAR rising 22% but its U.S. and Canada growth coming in at 4%. The company credited this in part to major events like the Women’s World Cup in Australia and New Zealand.

“In the third quarter, leisure room nights from U.S. and Canadian guests traveling outside the region were up nearly 25% over the last year, when cross-border travel was still constrained by Covid-related restrictions,” Marriott CEO Tony Capuano said on the firm's earnings call. 

“Much of the recovery we've seen in international markets has been on the shoulders of domestic demand,” he later added. 

Marriott Chief Financial Officer Leeny Oberg said the company expects this trend to continue, with year-over-year international RevPAR projected to grow by 14% to 16% in the fourth quarter, while it expects to 3% to 4% growth in the U.S. and Canada.

But the international market is also rife with risk from escalating global tensions. Marriott said the ongoing Israel-Hamas war has had an impact on hotel performance in the region. Marriott executives said it has seen cancellations at its five hotels in Israel and 27 others in Lebanon, Jordan and Egypt, but those countries account for less 1% of its overall revenues.  

“We’re keeping a close eye on the situation and working closely with our teams from the ground as events unfold,” Oberg said. 

Hilton last quarter saw its RevPAR increase by 6.8% year-over-year, in part due to strong international demand. The firm reported its RevPAR in Asia increased by 39% from last year, whereas the U.S. only saw a 3% increase. 

When asked about his expectations for next year, Hilton Worldwide CEO Chris Nassetta said he expects to see demand balance out, with the Asia-Pacific region leading the way.

“I think it will be reasonably balanced between the U.S. and the rest of world, maybe a smidge lower in the U.S. than the rest of world,” Nassetta said. “The one that would lead the pack again would be Asia-Pacific for a bunch of reasons, most notably China, which, if you recall, just in terms of comps, China did open up and is now doing really well.”

Hyatt is also betting on China’s recovery, with 40% of its pipeline in the country, according to Skift. The company’s overall RevPAR increased by 8.9%, with leisure travel up 22% from the third quarter of 2019.

“There's a clear uptick in travel demand in Asia,” Hyatt CEO Mark Hoplamazian said.

He also said he has seen growing demand in destinations like Cancún, Mexico, and the Carribean that attract American travelers.

“The reason we had such great confidence through Covid that we were going to fully recover is that travel is an essential human need, human connectivity and so forth — so is discovery,” Hoplamazian said. 

“So I think it's not surprising at all that when able to, people decided to branch out and go and either visit again or visit for the first time.”