Over the last two years, hotel and resort rates in the U.S. soared amid a reopening economy and pent-up travel demand coming out of coronavirus pandemic lockdowns.
But that ascent hit ever-so-slight turbulence in one of the priciest hotel segments earlier this spring.
U.S. luxury resort rates dipped 0.7% in March, the first time the sector saw any rate decline since February of 2021, according to hotel industry data provider STR. That may not seem like anything to write home about, but keep in mind: Any pricing relief is good news for travelers. There were points in the pandemic when hotel rates were a leading driver of inflation and jumped 29% from a year prior.
That said, it’s not exactly a signal of bargain pricing, either. Average daily rates for luxury resorts in the U.S. soared from $182 in April 2020 to a whopping $492 in March.
Further, a leading hotel data expert isn’t ready to call the slight rate slippage a sign of travel deals to come, even if it does signal the end of two years of surging travel costs within the luxury resort sector.
“The way I read this is two ways: Number one is the world is open, and Americans love to go abroad,” said Jan Freitag, the national director for hospitality market analytics at CoStar. “The other part of it is that we now have the return of the business traveler.”
Softening luxury resort rates don’t mean the overall luxury sector is in decline, Freitag added. In fact, overall luxury hotel rates in the U.S. are slightly up. However, the luxury resort sector — beachside hotels or glitzy mountain retreats — dipped in part because there are more options for these luxe travelers to go to this year compared to earlier in the pandemic.
More Americans traveled abroad in the first three months of this year compared to the first three months of 2019, Freitag reported for CoStar earlier this month.
“Some of those travelers are high-end travelers, and they’re taking their dollars with them,” Freitag told TPG. “That means they’re not staying in the Florida Keys. They’re not staying in Miami Beach. They’re not staying in the high-end resorts that have benefited from Americans being ‘locked up’ [during pandemic travel restrictions].”
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Additionally, travel industry analysts noted softer travel demand in March for Florida may have stemmed from costly airfare that could sometimes double (or more) the cost of a planned cruise vacation, according to a Truist Securities report released earlier this year.
Business is back. Bargains aren’t
Reviving business travel means luxury hotels in cities are beginning to fill up once again. These hotels remain more affordable than luxury offerings in leisure destinations: Urban luxury hotels in the U.S. for the first three months of this year averaged $332 a night compared to $475 for luxury resorts in more leisure-oriented destinations.
While luxury resorts might see nightly rates stall or dip in pricing over the rest of the year, the return of international travel, group travel and business travel demand means these high-end hotels in cities still have room to build their rates even higher. Because of that, we go back to our usual recommendation: Book now or potentially pay more later when it comes to luxury city hotels.
Additionally, the decline in rates is also partially fueled by the return of business travel. Larger companies negotiate special, lower rates with hotels because of their consistent stream of demand at certain properties.
This may suggest that rates are coming down, but it doesn’t mean the average leisure traveler is benefitting.
“We are layering in corporate-negotiated and group rates, which are lower. The mix shift is changing from 100% leisure to the normal, pre-pandemic mix of group, leisure, special corporate and business,” Freitag said. “That just means that the room rates are coming down — not because leisure travelers are paying less but because we have other lower-rated rooms in the mix.”
There’s still a luxury liftoff
Any softening in the U.S. luxury resort market appears to be a major win for European hotels. Accor, the largest hotel company in Europe and owner of brands like Fairmont and Sofitel, reported luxury and upscale room rates for the first three months of this year were up more than 16%.
Last year, Accor reported its highest-ever room rates in London, Paris and Sydney.
“There was an enormous amount of American tourism, which is certainly an indication of our industry still being blessed with two things happening: the rebound of international travelers and a very, very strong domestic leisure market,” Accor’s CEO Sébastien Bazin said on an investor call last summer.
The industry logic is that history will repeat itself over the next several months. Transatlantic airfare certainly seems to indicate that.