Noisy. Inconsistent. Volatile.
Those were the adjectives used by CEOs of major travel operators this earnings season to describe the future of the pandemic-hit industry.
Expedia and Booking Holdings both saw a roughly 90% drop in gross bookings in the second quarter, reflecting just how difficult the past three months have been for the travel and hospitality sector.
While the outlook remains uncertain, there is one segment of the travel market on fire: vacation rentals.
With the center of gravity shifting from cities to suburbs, demand for homes close to beaches, recreational parks and trails continues to grow across the nation.
When the pandemic first hit one of the world’s most valuable start-ups saw its private value nearly halved. Now as hotels suffer but vacation rentals boom, Airbnb CEO Brian Chesky is reportedly planning to file for a long-awaited IPO.
Mike Segar | Reuters
Booking Holdings, the world’s largest operator, saw 40% of its bookings from alternative accommodations in the second quarter.
Prices are rising too.
Data from rental search engine AllTheRooms shows the average daily rate for an U.S. vacation rental in July was $207, versus the $174 rate in July of 2019.
The interest in short-term rentals has aided Airbnb‘s business and prompted the privately listed to reportedly plan a confidential IPO filing with the Securities and Exchange Commission for sometime this month.
The debate over hotels’ future
Growing interest in homes has raised questions as to whether the shift from hotels to vacation rentals is temporary or permanent.
So far this earnings season, hotel operators Hilton, Hyatt and Marriott reported a dramatic drop in profits.
Airbnb CEO Brian Chesky recently said that the changes underway in the travel world are permanent in nature.
Booking Holdings CEO Glenn Fogel, disagreed.
“Hotels are not going away,” Fogel recently said on CNBC. “We’ve seen this trend for a long time of more and more people interested in alternative accommodations, which is why we’ve gone out and got more supply in that area, because we’re realizing people are seeing that as an attractive alternative. Certainly the pandemic accelerated that trend … but after the pandemic, you may have people saying, ‘I’m going back to doing it the way I used to do,'” Fogel said.
In a bad economy, extended stay bounces back
One segment outperforming other brands is extended stay hotels, which tend to have larger rooms featuring kitchenettes and are priced for the cost-conscious traveler.
Second quarter earnings from Marriott showed that out of all of its brands, Residence Inn had the highest occupancy rate, at roughly 40%, beating out the 18% at Courtyard and 8% at Ritz-Carlton.
Shares of real estate investment trust Extended Stay America are up 90% from mid-March, outperforming other hotel-related stocks. In an investor presentation in June, the company reported that 84% of guests who stayed at their properties used the kitchen. Experts say in an environment where people are trying to social distance due to Covid-19, travelers like having the option to cook.
Since the March market bottom, the economic downturn has been best for one hotel sector: extended stay properties.
In addition to leisure travelers, demand for extended stay hotels is being driven by medical and construction workers who do not have the luxury of working from home, and individuals who are looking for a temporary housing solution.
“Lot of times when there’s disruption in people’s lives, that changes their need for accommodation. So you know people lose their jobs, they may have to relocate, they may have housing issues, so we usually find that when there is disruption in people’s lives, that does create extended stay opportunities,” Bruce Haas, CEO and President of Extended Stay America, recently told CNBC.