Never mind that transient lodging demand has declined for four straight quarters and that STR adjusted down its U.S. hotel forecast to 2% RevPAR growth in 2024 and 2.6% in 2025, according to Elie Maalouf, president and CEO of IHG Hotels & Resorts, “the best days are still ahead for this industry.”

It’s in their best interest to sound assured: a vote of no confidence is never good for business. The hotel industry, like others, is cyclical—things go well, things sour some—and as Maalouf pointed out, “If you’re an investor, if you’re an operator, you will always have those higher highs and higher lows,” but patience is the attribute best to deal with it.

Some of the problems facing the hotel industry are readily apparent. Part of the reason STR adjusted its forecast down is due to the stubborn inflation that is keeping gas and groceries still high. It’s especially hit harder on the lower-income group consumers, which has and will result in that cohort foregoing travel in some cases, a circumstance that will negatively impact lower-tier hotels. STR now predicts that year-over-year RevPAR will decrease by 3% in 2024 for the economy hotel segment. “The upscale through luxury tier is seeing healthy demand, but pricing power has waned, given changes in mix and travel patterns and to a lesser extent, economic conditions. Travel remains a priority for most Americans, but the volume has lessened as prices on goods and services continue to rise,” said Amanda Hite, president of STR.

STR’s conclusion is shared by Chris Nassetta, president and CEO of Hilton, who said that the hotel industry on whole still had good pricing power, primarily because of the near zero growth in new supply. However, “It’s not one size fits all,” he said. “There are consumers at the lower spectrum of the economy that are tapped out a bit and demand is a little bit more challenging.” He contrasted that against the upper-middle and the upper-end of the socioeconomic spectrum, where “there’s still a lot of demand because people have a lot of money in their bank accounts and still want experiences.”

India’s Leap

In a CEO panel during NYU IHIIC, moderator and CNBC anchor Sara Eisen, who hosted the same panel one year ago, asked how hotel demand had cooled off since last year. “We don’t have the benefit of the really easy year-over-year comparisons, but if you listen to our earnings calls, you heard some consistent things,” said Tony Capuano, president and CEO of Marriott International. Those themes were consistent growth in performance across sectors and geographies, though not, as he admitted, the “eye-popping double-digit record growth.” Though one region, he said, is performing more optimally: Asia Pacific. And within APAC, it’s India that all the hotel company CEOs salivate over see as the next big frontier for growth.

STR might have a hard time forecasting the future, but Sébastien Bazin, president and CEO of Accor, fashions himself a soothsayer. “This is an industry that is probably the easiest industry to predict,” he said. “It’s 90% correlated with demography. You dive in and try to dissect emerging middle classes. Where it is growing the fastest today is India. So you know that India will be the next play.”

Bazin said the other correlation beyond population growth is infrastructure. He alluded to infrastructure build outs in the U.S. between 1965 and 1985, then in China from 1990 to 2010. “We are seeing the exact similar pattern in India,” he said, “2020 to 2040.”

Fellow CEO Nassetta was as bullish on India, citing many of the same reasons as Bazin. He called China and India the two biggest travel and tourism markets in the world. “India is on the move and will start moving a lot faster,” he said. “All you have to do is look at what’s happening in infrastructure—all the airports and highways and roads that are being built. Over the next 10 or 20 years, it will be developing travel and tourism at a much faster pace.”

The premise for India optimism is rooted in the idea of the upward mobility of the country’s population. It is not based on the idea of inbound travel but domestic. “Until the last five years, it used to be 70% inbound, 30% domestic,” IHG’s Maalouf said. He now says those numbers are flipping. “Household wealth is moving up. Businesses are working.”

One of the other shifts in India, pointed out by Mark Hoplamazian, president and CEO of Hyatt Hotels Corp., is the ownership structure of hotels in the country. “What’s occurred in the last two years in India is public ownership of hotels,” he said. Hyatt has around 50 hotels in the country and for many years has been in partnership with the Saraf Group, jointly operating Juniper Hotels, which has a portfolio of seven Hyatt-affiliated hotels. There is staggering motivation, he said, for public ownership—inherent growth and skyrocketing profitability. “Now you’ve got real institutional capital formation in a market that was dominated by families and small groups. We’re talking about significant money getting raised. This is a completely new beginning of a publicly owned asset class, where capital formation will be easier and easier. It’s coming at exactly the right time.”

Corporate Comeback

In November 2020, Bill Gates said that more than 50% of business travel and more than 30% of days in the office would go away in a post-pandemic world. He has since been proved wrong. Corporate travel four years later has come back, though it’s a bit uneven and it looks a bit different than it did before.

“I have a lot of respect for Bill Gates, but he got that one 100% wrong,” Hoplamazian said. “We’re still growing leisure on a very high pace the last two years compounded, but this year, the big change is business travel.” Hoplamazian noted that business travel in New York, for instance, is up some 20%.

There has been a shift in how corporate travel looks. Small- and medium-sized enterprises, or SMEs, led the way in 2021 and 2022, Hoplamazian said, adding that Hyatt’s corporate accounts through April were up 12% year-to-date and total business transient up 6%. “The whole segment for us is growing,” he said. “We haven’t seen one month that it hasn’t gotten better. It is going to be distributed in much the same way as we saw pre-pandemic, because people see the value.”

Another person who shared in some of what Gates said on corporate travel is Accor’s Bazin. Three years ago he said that he believed that 25% of international business travel would go away forever. He doubled down on that statement: “I think it’s still true,” he said. “It’s a different business travel—the guys going from Seattle to New York or Seattle to London, I guarantee you, half of those guys, individual businessman, are reducing by half.”

He said that the gap is being filled by the SMEs, where they meet more often because of flexible working.

In China, Marriott’s Capuano said business travel was back but also different than before. “It’s not back in the same mix of cross-border and domestic that we saw in 2018 and 2019. It’s back largely on the shoulders of domestic,” he said.

Meanwhile, it’s group business that has come back gangbusters, the CEOs said. “Much of the media coverage is around business and leisure transient, but group is the strongest performing segment right now,” said Capuano. And the travel booking window has shifted, he said. “We were talking about really short booking windows—that’s inverted completely.”

It’s actually made it difficult on sales teams because, as Capuano pointed out, some groups are looking to book as far as seven years out. “I’m not sure you want to lock in those rates,” he said, to which Eisen asked if it was because he thought rates would come down. Almost in unison the panel said, “No, they’ll go up!”

By David Eisen