There's a reason 2020 was a brutal year for airlines and hotels alike: Travel was virtually ground to a halt during the pandemic. Between quarantine mandates, restrictions, and health concerns, many leisure travelers opted to stay close to home, while companies put business trips and conferences on hold.
But now, things are opening up. States have lifted their quarantine restrictions, and coronavirus vaccines are making more people comfortable with the idea of boarding a plane and spending a week at a crowded resort.
Still, it may be a while until business travel returns to pre-pandemic levels, which could impact real estate investors with hotel REITs (real estate investment trusts) in their portfolios. That said, there are signs that business trips may be picking up, and if that trend continues, it could seriously help hotels recover from the miserable year they just had.
Hotels need a lifeline
At this point, corporate trips are sitting at 70% or more below pre-pandemic levels, according to data from the airline industry. But some carriers -- notably, American Airlines and United -- say they've seen their share of business trips pick up in recent weeks. In fact, American Airlines says that 47 of its 50 largest corporate accounts insist that they plan to resume traveling this year.
And it's not just large corporations with massive budgets that are seeking to resume business travel. In a May survey by the U.S. Census Bureau, 35% of small business owners said they expect to incur travel expenses in the next six months, up from 31.5% in April and 26.5% in February.
Hotels commonly rely on business travel to account for a large chunk of their revenue. This especially holds true for hotels adjacent to convention centers or with facilities focused on amenities like meeting rooms more so than swimming pools. An uptick in business trips could help hotel REITs begin to recover from the brutal impact of 2020, when occupancy rates hit record lows.
Barriers to business travel still exist
Of course, hotel REIT investors may need to brace for the fact that business travel may never quite reach pre-pandemic levels. In an age when collaborating and meeting remotely has become the norm, it's gotten harder for companies to justify the expense of business travel when team members across the country can simply log into a Zoom meeting at no added cost. Plus, many companies still haven't returned staff to office buildings, so it's hard to make the case that they should be boarding a plane and traveling to an off-site meeting.
Furthermore, during the pandemic, many conference operators managed to pull off remote events, and many may seek to continue offering them now that attendees are used to logging on from afar. That, too, could impact business travel.
But still, from a real estate investing perspective, things are looking a lot less dire for hotels now than they were at this time last year. And if business travel slowly but surely begins to pick up, that, combined with a surge in leisure travel, could help hotel REITs recover a lot of value before 2021 comes to an end.