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Key factors to recover business demand

In a recent webinar on European hotel performance, Robin Rossmann, STR Managing Director, addressed the return of business travel, a key consideration for hoteliers with summer now in the past and conference season beginning.

Rossmann emphasized that a safe return to office is the linchpin to unlocking business demand. Once employees are back in office, travel will resume in stages depending upon method of travel, reason for travel, and industry sector. While hoteliers have little control over some of these factors—physical location and market industry mix are relatively fixed inputs—the sector can influence other key elements of business travel recovery.

Group demand last to return

There are three key reasons for business travel: client meetings, internal meetings, and industry conferences. Client and other sales-driving meetings will be first to return. As Rossmann pointed out, “if you’re not meeting your customers face to face, I can promise you that somebody else will.” Industry conferences, trade shows, and other high-volume events will be last to return, pending an end to restrictions on gathering size as well as some degree of economic recovery.

While group demand is still missing in action—European hotels sold 4.8 million group room nights in August, a 77% decline year over year—a look at 2019 segmentation trends lends insight into how swiftly markets can expect to recover. Markets reliant on transient demand, a segment that includes both business and leisure travelers, should recover occupancy faster than markets geared toward group demand.

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Robin's views on budget/forecast blog - Transient travel dependent markets recover faster

Transient travelers accounted for over 80% of total London hotel demand last year, compared to only 55% of demand in Prague. Correspondingly, preliminary September occupancy in London was nearly double that of the Czech capital. Prague hotel occupancy declined through the month of September as the summer holidays ended and business demand failed to materialize, while London occupancy has steadily increased from the U.K.’s 4 July reopening.

Understanding not just property-level segmentation mix but also market segmentation mix can assist hoteliers to both set expectations around recovery and identify historically underserved demographics to drive demand.

Salute the flag?

Over 62% of European hotel rooms are operated independently with no brand affiliation, although that percentage has declined over the past decade as major chains expand their global footprint. Rossmann pointed out that as hotels and short-term rentals fight for business demand, branded properties may have an advantage.

Risk management, a top concern for employees and companies worldwide, is more easily achieved in flagged accommodations; at the very least, brand standards offer the perception of safety.

In Aberdeen, where nearly 80% of hotel rooms are flagged, Independent hotel occupancy not only trails chain hotel occupancy, but has failed to materialize normal daily occupancy patterns. Chain hotel occupancy rises on Tuesdays and Wednesdays as business travelers flock to the petroleum hub and drops on weekends when road warriors return home. Independent hotel occupancy evinced minor recovery through 19 September, but the trend remains unstable and difficult to predict.

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Robin's views on budget/forecast blog - Chain hotel occupancy returns to normal day of week pattern

While branded hotels provide a strong inducement for business travelers looking to mitigate risk, hotels must still ensure that “the experience lives up to the safety standards” in order to maintain business demand.

Long-term recovery

The travel and tourism industries will recover, although the course will not be immediate or easy. Hoteliers must recognize fixed business demand drivers—guests’ method of travel and local market industries—and overlay COVID-19 considerations like segmentation trends and safety perceptions in order to identify target demographics and forecast demand.

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