Recovering international travel means hotel rates are only getting higher

A regional banking crisis, rising interest rates and inflation form an economic trinity to spook many. Based on the number of corporate layoffs announced since last fall, the trinity certainly has done that.

However, the U.S. travel sector remains an anomaly amid an otherwise uncertain economy, especially as international tourism flickers back to life.

U.S. inbound and outbound tourism isn't back to pre-coronavirus pandemic levels, according to a recent report from the U.S. National Travel and Tourism Office. Still, there's plenty to celebrate once you dig into the data.

Nearly 51 million people visited the U.S. last year — a 128% increase from 2021, when borders were shut for much of the year. There's still room to grow to pre-pandemic levels, but this is a huge bragging point for major hotel companies. The CEOs of these hotel companies excitedly noted on recent earnings calls how they have room to raise hotel rates amid still-recovering demand generators.

"The international markets are opening up," Hilton CEO Christopher Nassetta said on an earnings call earlier this year. "You're starting to see not just inbound to the U.S. but across the world: People are traveling."

The fact that international travel hasn't returned to 2019 levels means hotel rates will likely increase further once travelers drive occupancy rates even higher at properties across the country and abroad. In December, international visitors to the U.S. were at roughly 75% of pre-pandemic levels — and that's well before the peak summer travel season.

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Remember that luxury hotels in the U.S. this month were already performing 24% above 2019 levels, and the overall sector was 10.4% above pre-pandemic performance, according to STR. Bargains are unlikely amid revived international travel advancing later this year.

Hotel companies with a bigger presence abroad, like Accor, also have reason to celebrate. The 8.3 million Americans traveling internationally in December was close to pre-pandemic tourism levels. It was only 6% shy of the demand level seen in December 2019. The return of Chinese travelers abroad is likely to close the remaining gap.

"The two largest emitting markets in terms of numbers of [international] travelers happen to be America and China. You have roughly 150 million Americans traveling outside of America, and you had the same 150 million Chinese traveling outside of China in 2019. Many of the Americans are back," Accor CEO Sébastien Bazin said on an investor call earlier this year. "It's very likely we're going to see, and it's probably going to go sequentially, a lot of the 150 million people from China traveling [abroad] again."

What inflation?

In July of last year, 60% of travelers said inflation would impact how they traveled in the latter part of 2022, according to the World Travel & Tourism Council's Economic Impact: 2022 Global Trends report. So, it's impressive that travel shows signs of strength continuing into the new year.

The WTTC anticipates the U.S. travel and tourism sector to grow by 3.9% annually — nearly double the rate of the overall U.S. economy. It also anticipates the sector to make up 9.2% of the overall economy by 2032. Travel and tourism accounted for 5.5% of the total U.S. economy in 2021.

The WTTC also points to a December 2022 report from Trip.com that indicates travelers in North and Latin America are looking to travel to domestic destinations and international markets like Brazil, New Zealand, China, Japan, Thailand, Malaysia, Qatar and the United Kingdom.

However, it's important to recognize how much of that travel interest will likely remain in the U.S. before spreading to any international destinations. Domestic travel accounted for nearly 95% of all U.S. travel and tourism spending in 2021. Numbers for 2022 will be released late next month.

Whether domestic or abroad, it is evident there are still travel sectors recovering from pandemic lows. Still-recovering demand means hotel rates aren't coming down anytime soon. Book now or pay more later.