UNDERSTANDING THE U.S. HOSPITALITY SECTOR: RECOVERING FROM A PANDEMIC

Abstract

The COVID-19 pandemic caused global disruption and the world’s largest economy was not spared. Travel was the hardest-hit industry in the United States. When spending from both domestic and international travel fell by US$500 billion, the country’s economic output was set back US$1.1 trillion. This event represents an opportunity to study the various factors that affect the success or failures of the response of industry players in the face of an unprecedented halt in tourism. Consequently, the findings would aid investors in their decision-making process, as they would be able to better assess the stability and profitability of their potential investments. Using quarterly data from the financial reports of the 17 U.S. lodging real estate investment trusts from 1Q/19 to 3Q/21, this study found that limited-service hotels were the least vulnerable to the impacts of the pandemic. Catering mostly to domestic travellers, measures of performance such as occupancy rates and average daily rates, did not fall as much as they did for the luxury, full-service hotels which were heavily reliant on international tourists. However, the luxury chain scale segment has shown promising signs of recovery with RevPAR values reverting to pre-COVID levels. Taking into account changing expense ratios and revenues with a DEA approach, this paper observed that the luxury market has shown increasing levels of relative efficiency amongst other L-REITs, suggesting the generation of just as much and possibly even more revenue, while increasing their cost-savings margins. Finally concluding that while economy L-REITs were the most resilient during the pandemic, luxury L-REITs were given room to innovate for growth.