Feb 16 (Reuters) - Wall Street analysts have cut their expectations for U.S. hotel operators’ key revenue measure by 5%-10% this year, convinced that resurging coronavirus cases and the worst drop in annual occupancy rates ever mean a recovery may still be years away.
Government-enforced lockdowns and travel bans drove many hotels to the brink last year, with average occupancy dropping to a low of around 22% in April, according to analytics firm STR.
While the occupancy rates then bounced back above the 50% mark, new, more infectious variants of the virus have sent them back to around 40%, making analysts nervous about this year’s outlook.
“Things could get worse if the new variants of the virus prove more resistant (to vaccines),” said Aran Ryan, director, lodging analytics at consulting firm Tourism Economics.
Ryan and STR have cut their 2021 growth outlook for U.S. hotel industry revenue per available room (RevPAR) - a key measure for a hotel’s top-line performance - to about 22% from about 30% previously.
U.S. hotel RevPAR dropped by about 50% to $43.2 last year, the lowest since 1995, and is expected to recover to $52.55 in 2021, with 2019 levels of $86.6 not expected until 2024.
Most expect the first bounce to come from leisure travel, leaving hotel chains like Marriott and Hilton which rely more on business travel, struggling for longer.
Top picks in the sector include Wyndham Hotels and Choice Hotels, which have a 70% to 80% exposure to leisure, as well as Extended Stay America, which specializes in temporary housing for healthcare professionals.
“There is downside risk and it really relates to the timing of when business travelers get back out on the road,” said Robert W Baird analyst Michael Bellisario, who has modeled higher RevPAR growth of 25% in 2021.
The big chains all slashed costs last year, including thousands of job cuts, while also raising funds via multiple bond deals, which should ease them through the crisis.
“The hotel operators have more than they need,” says Bellisario. “They’re probably going to hold on to that liquidity until there’s greater fundamental clarity 12 months down the road.” (Reporting by Ankit Ajmera in Bengaluru; Editing by Maju Samuel)