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Hotel Industry Updates

Midscale and Economy Hotels Are Outperforming the Industry During the Pandemic

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iStock/Oleg_Ivanov

It’s a widely known fact that the hospitality industry is taking its lumps during the coronavirus pandemic. In fact, The Wall Street Journal (WSJ) recently reported — citing projections from hospitality data tracker STR and Tourism Economics — that the U.S. hotel revenue per available room is predicted to drop more than 52% this year.

Although many players in the industry are suffering, one niche has not been hit so hard. This summer, as American travelers took outdoor, remote vacations, they stayed at midscale and economy roadside hotel franchises, which are likely to remain relative outperformers as the pandemic continues and the weather gets colder, WSJ says.

According to data from STR, revenue per available room for these hotels dropped substantially less than the revenues of their competitors in the luxury and upscale sectors, along with all hotels in urban areas. The midscale and economy hotels recovered at a quicker rate as well. During the week of Sept. 12, the revenue per average room in interstate hotels was down just 25%, compared to the same time last year. But hotels in urban areas suffered a 73% drop, while economy and midscale hotel chains were down more than 12% and 25% on the same metric, WSJ says.

One company that has stayed strong in the pandemic is Choice Hotels International, which has more than 7,000 hotels in the upscale, midscale, extended-stay and economy sectors. UBS Analyst Robin Farley told WSJ that nearly two-thirds of its business caters to leisure travelers, as opposed to some upscale hotel operators who only cater approximately 30 percent of their businesses to this customer base.

This strategy has paid off for Choice, which said more than 90% of its domestic branded hotels stayed open during the worst point of April. In addition, although its share price is down over 17% in 2020, it has rallied more than 46% in the last six months, which has allowed it to exceed the performance of its peers, WSJ says.

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