On today’s show we’re looking at the fragile recovery in the travel and hospitality sector. This week was March break in much of North America.

The signs of recovery are starting to show. This is clear from anecdotal reports, as well as from the hotel analytics firm STR Global. STR issues a weekly report on the health of the hotel industry which can be viewed on the data insights portion of their website. The leisure-and-hospitality industry added 35,700 jobs in February.

Hotel occupancy for the first week of March was 49%, a 20 week high.

The increased willingness to travel seems to come down to a number of factors.

  1. Falling case counts across the nation.
  2. Increasing number of people being vaccinated.
  3. Fatigue with the whole pandemic.
  4. Some states have opened up their economies

Overall, occupancy has recovered to 70% of pre-pandemic levels and REVPAR has recovered to about 55% of pre-pandemic levels.

One hotel that we monitor closely is the Golden Nugget Hotel and Casino in Lake Charles Louisiana. One of our team members attempted to book a room this week at this 1,100 room property and found that there was no vacancy mid-week.

Even in our own portfolio of short term rentals, we’re seeing climbing occupancy. Throughout ski season, we experienced occupancy of close to 90%. We’re seeing longer term reservations and rising nightly rates. All of this seems positive for the upcoming summer season. But we don’t believe that occupancy levels will return to pre-pandemic levels until international travel returns in a big way.

Many countries have still closed their borders and many are grappling with the whole question of vaccine passports. While none have truly implemented this, we have yet to see how international travel will be held back by rates of vaccination.

There are obviously ethical questions about whether restricting travel based on vaccine status is an infringement of human rights. No doubt there will be legal challenges on this question.

We are starting to see capital transactions happening in the hotel business.

Blackstone Group Inc. and Starwood Capital Group said Monday they had teamed up to buy Extended Stay America for $6B.

Extended Stay is a midprice hotel chain that focuses on lodging for guests interested in staying for weeks or longer, offering kitchen facilities and more space than a typical hotel room. During the pandemic, its rooms and suites attracted essential workers, healthcare professionals and others who needed to travel.

That business helped Extended Stay achieve a 74% occupancy rate last year when occupancies industry wide were running below 45%. This says that the inclusion of full kitchen has made the properties a more desirable product in the market. It mirrors the experience we have had in our own portfolio of short term rentals that happen to be located in hotel properties with rich amenities.

Blackstone are experts in the hotel business. They’re a savvy buyer. They used to own Hilton hotels from 2007 to 2018. They bought Hilton at the peak of the market and within months were deep underwater on their investment. Through hands-on management, rolling up their sleeves, they learned the hotel business. By the time they turned it around, Blackstone turned a catastrophic loss into a $14B gain.

This is a savvy purchase. The market place should pay attention. I predict that this is not the last move that Blackstone is going to make in the hotel industry. They might make further acquisitions. They might reposition the brand. They might use the Extended Stay America brand as a launch point to purchase distressed assets that can complement the existing portfolio.