Hotel Industry Trends: A Shift in Performance Post-Pandemic, Insights from Morgan Stanley

According to a recent analysis by Morgan Stanley, the hotel industry’s performance has undergone a notable shift. After the pandemic, there has been a reversal in the performance of various segments within the industry. Initially, economy, midscale, and resort segments saw significant growth in the short term as travel began to rebound post-COVID. However, these segments are now experiencing a decline in performance. On the other hand, urban, group, and upper-upscale segments, which struggled initially during the pandemic, are now gaining traction as travel patterns normalize.

Morgan Stanley’s Lodging 1Q24 Check-in report describes the transition from leisure to business travel as ‘choppy’ but points to positive forward indicators. The report indicates that Revenue per Available Room (RevPAR) is slightly decelerating in Q1 compared to Q4, primarily due to weaker leisure travel in the United States. Notably, urban, group, and upper upscale segments are showing year-over-year growth rates of 3% to 5%, whereas economy, midscale, and resort segments are experiencing declines ranging from 1% to 7% year-over-year.

The Q1 trends show a slowdown compared to Q4 across regions: U.S. RevPAR is flat year-over-year, Europe’s RevPAR growth has decreased from 7% to 6% year-over-year, and China’s RevPAR has improved from -6% to +4% compared to 2019, though it’s below Q4’s figures. Morgan Stanley attributes the lower U.S. performance to adverse weather conditions in states like Florida, California, and Phoenix, as well as the impact of the Easter holiday shift.

Despite the Q1 slowdown, management commentary suggests that RevPAR is expected to improve in Q2 and beyond. Key takeaways include the observation that leisure travel (weekends/resorts) has lagged behind business travel (urban/group), and the low-end (economy/midscale) has underperformed the high-end (upper upscale).

Looking ahead, Morgan Stanley identifies several themes to monitor in the hotel industry’s trajectory through the year. These include strategies to stabilize the performance of lower-end segments, potential for revenue growth despite modest RevPAR increases, and opportunities in international inbound and outbound travel.

In terms of market outlook, Morgan Stanley favors C-corporations over Real Estate Investment Trusts (REITs), citing better performance by the former compared to the latter. The firm is particularly positive on Marriott International, Hilton, and Wyndham Hotels & Resorts, while adopting a more cautious stance on Hyatt Hotels Corp.