Industry analysts see trends pointing toward a ‘mild’ recession coming this year |

Industry analysts see trends pointing toward a ‘mild’ recession coming this year

Despite headwinds, destination tourism revenue expected to remain strong

Skiers and snowboarders right the new Sun Down Express Lift Wednesday in Vail. While lodging and other resort revenues remain strong, current trends show softening lodging demand.
Chris Dillmann/Vail Daily Chris Dillmann

After riding a rollercoaster since 2020, is the destination tourism industry finally settling down?

Inntopia, a tourism market research firm, last week virtually gathered a group of industry watchers for a seminar called “Glancing Back and Looking Ahead.” The consensus in the group was that lodging inventory may be up, but demand is starting to wane.

John Freitag of the CoStar Group, a hospitality market analytic firm, noted that rate “is as high as it’s ever been” across the destination resort industry. One metric, revenue per available room, is up an average of 30% across the industry.

“That’s not sustainable,” Freitag said, adding that he expects to see rate growth slow.

While Freitag said his firm sees a “mild recession” in this year’s second and third quarters, the forecast also calls for slight increases in both occupancy and revenue per available room.

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Declining demand

Tom Foley, Inntopia’s senior vice president of business intelligence, said the picture is slightly different in mountain resorts. A trend that began in 2022 is showing a “softening” in average daily rates for rooms, along with declining demand.

Foley noted that rate increases over the past 18 to 24 months have offset declining demand. That’s no longer happening, he said.

In addition, lodging stays are becoming shorter.

Still, Foley said, he doesn’t anticipate declines in rate, along with increases in room inventory.

After the pent-up demand year of 2021, followed by a strong 2022, Foley said he expects 2023’s lodging picture to be “nondescript.”

Still, people are coming to resorts, and a number of them are combining work and leisure.

Pete Comeau, managing director of industry analysis firm PhocusWright, said while combining work and travel isn’t new, the ability to blend work and play has improved over the past couple of years. Those “bleisure” guests are mostly younger, Comeau said. Those from the Baby Boom generation tend to separate their vacations from their professional lives.

The work/leisure combination “has huge implications across the industry,” Comeau said, because lodging and other businesses no longer can manage staffing in traditional ways.

“We’re seeing Wednesday as the start of the weekend, with Tuesday the end of the weekend,” Comeau said.

Selling sustainability

Comeau added that while sustainability has taken “center stage in the media,” actual consumer behavior is a bit different.

Comeau said he’s seeing a “moderate willingness” to pay premiums for “green” experiences, especially for food.

Still, discretionary spending favors travel. Comeau said surveys indicate travel remains at the top of discretionary spending priorities, far ahead of nightlife, dining and other activities.

On the other hand, business travel is susceptible to economic downturns, Freitag said.

While the tech industry has seen rounds of large layoffs, Freitag noted that those layoffs may unleash a flood of innovation and new companies.

Comeau noted that Uber and Airbnb both started during the Great Recession that began in 2008.

While laid-off tech workers may start their own firms, Freitag said those entrepreneurs will probably stay at mid-priced lodges instead of high-end properties.

Thanks to Zoom and similar technology, Comeau noted that the one-day business trip is now a relic. But, he noted, other corporate meetings and retreats are returning.

In addition, the return to an office setting for many people is having an effect on the second-home market.

All the moving parts in the destination economy, combined with national economic uncertainty, make forecasting tricky.

Foley said he’s expecting “gentle growth” this summer.

“I think revenue’s going to remain strong, but growing gently,” Foley said. Overall, he added, “I think it’s going to be a mediocre” summer season.

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