Hospitality Stocks Out-Innovate Challenges As Sector Keeps Pace with S&P 500

Following the tumultuous start to the decade for hospitality stocks, it's likely that leading Wall Street players and investors alike will be on high alert for the next curveball thrown at the industry. Now, as volatility returns to global markets, it appears that innovative hospitality firms are intent on staying one step ahead of other industries. 

The re-emergence of recession fears throughout Wall Street in early August saw global markets plummet, with significant ramifications for hospitality stocks. 

Owing to weaker-than-expected data from the US jobs market and creeping unemployment data, the S&P 500 tumbled as much as 8% from its July peak and has so far failed to recover its losses in any meaningful way. 

Recent data emanating from hotel stocks points to a mixed bag for the industry. Leading firms like Marriott MAR, Wyndham WH, and hotel REITs have been showing signs of weakening revenue per available room in recent months, but other data sets show hospitality services growing well into the year. 

According to Truist Securities’ analysis of the gross operating profits for over 1,000 full-service and luxury US hotels, figures have been just 110 basis points away from recovering to pre-pandemic levels. 

Despite falling 2.9% in July, the Baird Hotel Stock Index, which is comprised of the 20 largest hotel brand companies and REITs publicly traded in the US, recovered by 2.1% in August. The index has risen in two of the past three months and five of the first eight months of 2024. 

Recapturing Pre-Pandemic Momentum

Recent years have been punctuated by the pursuit of hospitality firms to recapture momentum lost in the Covid-19 pandemic. 

IMF estimates suggest that the global economy shrank by 4.4% in 2020, with disruptions to travel and tourism impacting hospitality firms for many years after the initial outbreak. 

Statista's July forecasts anticipated that 2024 will finally be the year that sees travel and tourism's contribution to global gross domestic product (GDP) surpass pre-pandemic levels, but the emergence of new recession fears in the US could impact the industry's recovery. 

This year was supposed to be a watershed moment in the recovery of the hospitality industry after an excellent 2023. It may well be a strong innovation pipeline that helps the sector's brightest stocks to continue to shine in the face of recession jitters. 

Embracing Innovation

Moving into the 2023 festive season, global lodging C corporations like Marriott International, Wyndham Hotels & Resorts, Hilton Worldwide Holdings, Choice Hotels International, and Hyatt Hotels had rallied an average of 26%, outpacing the S&P 500's 18.5% rise over the same calendar year. 

One of the industry's biggest stars in 2023 was Marriott, which grew 40.4% off the back of strong future growth prospects and renovation initiatives through the Latin America and Caribbean regions as well as posting growth in safari markets throughout Africa. 

Marriott's 2024 performance, however, has been far more stagnant despite positive forecasts for the hospitality industry's post-pandemic recovery. The stock fell 17% from its July peak in the wake of August's Wall Street collapse and ended the second quarter 3.8% lower. 

Despite a more volatile year, 2024 may yet become the watershed year commentators are hoping for thanks to firms like Marriott embracing new technologies to further optimize their operations. 

May 2024 saw Homes & Villas by Marriott Bonvoy, a vacation rentals initiative from Marriott, launch a generative AI search tool designed to help users more comprehensively explore their vacation options. 

Utilizing Microsoft's Azure OpenAI technology, the tool uses natural language processing to curate the perfect accommodation to match customers with the ideal holiday and hospitality experience from the firm's catalog of 140,000 homes and villas. 

The platform is set to improve the vacation experience for travelers worldwide and could help to transform customer satisfaction. 

Similar technologies are helping to collaborate with human hospitality staff to drive AI-based task automation, personalization, and guest interactions to bolster hospitality customer experience models. 

This technology hinges on the collection of structured and unstructured data from integrated point-of-sale (POS) insights and other Internet of Things (IoT) integrations alongside social listening to deliver more bespoke experiences for guests. 

It's through embracing AI that can help hospitality stocks avoid experiencing weakness amid wider stock market uncertainty and facilitate growth as the Q4 holiday season uncovers fresh revenue opportunities. 

Navigating Uncertainty

Just as the challenges faced in the wake of the pandemic continue to disappear in the rear-view mirror, hospitality stocks have been dealt a new series of challenges as US recession fears threaten to impact consumer spending power. 

With market volatility unlikely to subside soon, leading hospitality stocks may seek solace in innovative new technologies to help secure more sustainable growth in the post-pandemic landscape. 

In opting to nurture experience-enhancing technology, we could see more outperformance in comparison to the S&P 500 in late 2024 and 2025 relative to the impressive market rallies of hospitality firms in 2023. 

It's this commitment to adaptability that can help hospitality firms endure the challenges of the future while continuing to thrive amid wider market uncertainty.

On the date of publication, Dmytro Spilka did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer. Dmytro Spilka does not intend to make a trade in any of the securities mentioned above in the next 72 hours.