European Hospitality Sector Outlook 2024 - Extended Version

Driven by remote and hybrid work arrangements, more people are adding leisure stays ahead or after their business trips. "

• The impact of China's re-opening in mid 2023 has so far not been as robust as expected due to their domestic economic challenges. However, as Chinese travelers have not released their “revenge travel” to Europe yet, the arrivals are forecasted to increase by 82% in 2024, according to Oxford Economics, generating over 33 million overnights. This is likely to boost the hotel performance in key tourism hotspots for Chinese travellers, such as London, Edinburgh, Rome and Paris. • While video calls and virtual meetings are here to stay, business travel and conferences are recovering, fueled by the need to meet clients and remote colleagues in person. According to a recent white paper by MasterCard, 88% of travel decision-makers believe that business travel is critical for driving their organization’s growth, and 90% believe that their growing hybrid/remote workforce will significantly increase their business travel viii . Thus, it should be less surprising that despite the current economic and geopolitical challenges, operators are reporting growth of corporate business in their hotels. For example, Hyatt Hotels’ recently announced that third-quarter transient business travel revenue increased 19% year over year and has recovered to approximately 90 per cent of 2019 levels ix . This is confirmed by the data from our sample of 93 full-service branded hotels in the 14 key European markets. In YTD September 2023, the revenue generated by corporate travelers has reached 87% of 2019 levels while conference revenue already surpassed it by 7%.

• The data based on traditional segmentation of guests into leisure and corporate might not tell the full picture. Driven by remote and hybrid work arrangements, more people are either adding leisure stays ahead or after their business trips (“blended travel”), working while on holidays (“workcations”). Increasing shoulder night occupancy and a lengthening of the average transient stay indicate these trends are enduring x . Marriott recently reported that the share of corporate arrivals to their hotels on Wednesday or Thursday and staying past Saturday grew to 18% in the second quarter, up 5pp from the same period in 2019. Hilton has seen the length of stay for transient business travellers increase by 15% compared to 2019. According to PhocusWire, people who intend to work while travelling plan on taking twice the number of trips than they would if working remotely wasn’t an option. According to a Deloitte survey, on average, travellers will add five travel days across the holiday season if able to work remotely viii . stay hotels, that should benefit from further growth in coming years. A recent report from the Global Business Travel Association (GBTA) predicts that the business travel industry will exceed 2019 travel levels by 2024, which is two years earlier than its previous forecast . A Morgan Stanley survey of 135 corporate travel managers showed that they expect 2024 travel budgets to be, on average, 8% above 2023. The forecast by Oxford Economics expects even stronger double-digit growth of business arrivals and spending in 2024. staying in hotels due to long-distance commuting (“super-commuting”) or This is boosting demand for hotels with amenities allowing work and extended

BUSINESS TRAVEL AND SPENDING IS EXPECTED TO RECOVER (BUSINESS TRAVEL TO EUROPE)

CORPORATE HOTEL DEMAND IS CATCHING UP (RECOVERY INDEX - YTD SEP 2023 VS YTD SEP 2019, FULL-SERVICE BRANDED HOTELS IN 14 KEY EUROPEAN CITIES)

180%

Domestic Spending Inbound Spending Overnight Arrivals

Corporate Conference All Segments

140%

160%

140%

114%

120%

119%

100%

107%

80%

95%

93%

87%

87%

60%

71%

40%

20%

0%

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

ROOM NIGHTS

REVENUE

Source: HotStats

Source: Oxford Economics

• On the cost side, we can expect to see an easing of utility rates into 2024 as declines in wholesale energy prices trickle through into commercial contracts as renewals occur. The pressure on salaries will remain, especially in the UK, where National Living Wage increases are anticipated to grow by nearly 7% in April 2024.

However, hoteliers have learned during the pandemic to operate with a leaner staffing structure, and there are opportunities to deploy technology to counter payroll pressures and further reduce energy costs.

14 HOTELS OUTLOOK 2024

THE TIDE IS TURNING AMALGAMATED | 15