Fitch Ratings : The deteriorating sector outlook for global lodging reflects Fitch Ratings’ expectation that the strong recovery in demand that started in 2022 will be halted in 2023 by a weaker macroeconomic environment. Demand will soften in the European and North American markets, although in APAC (excluding China) it may continue rebounding as travel restrictions have been lifted later than in other regions. However, as recovery in China is constrained by its strict zero-Covid policy, the recovery in the rest of APAC will not be sufficient to offset weakening demand in Europe and North America.

We expect lodging demand to soften from 2Q23 as bookings for 1Q23 are still healthy, reflecting pent-up travel demand and consumers’ willingness to spend savings accumulated during the pandemic on experiences rather than goods. We expect revenue per available room (RevPAR) to reduce because of lower demand, but this fall will not be dramatic.

The sector faces new challenges with leaner and more flexible post-pandemic cost structures. This should help absorb higher labour and energy costs in 2023, alleviating pressure on profit margins. The pandemic also drove a structural reduction in supply as inefficient companies left the market. As supply is unlikely to be fully rebuilt in the next three years, larger lodging companies will benefit from enhanced pricing power and the ability to keep average daily rates above 2019 levels, although we project some rate normalisation after unsustainably high levels in 2022.

Key developments that may affect the lodging market in 2023 include global macroeconomic trends, such as the depth and the length of the recession in the main developed markets, changes in China’s zero-Covid policies and cross-border travel requirements in Asia, geopolitical shifts in Europe, and higher group bookings in the US that may offset demand pullback in other segments in the region.

“Global Lodging Outlook 2023” is available at www.fitchratings.com or by clicking the link above.