What We're Seeing in the Market Now - Sloan Dean, Remington Hospitality

Josiah: I'm kind of curious what you're seeing out there. What's going on?

Sloan: Yeah, I think you know, we'll look back in us with the exception unless there's an external shock that we don't see the q1 domestically will be the softest quarter for year-over-year rough paragraph. So I think that's good You know you had corporate earnings for most public companies just the last couple of weeks probably some lackluster relative to expectations I do think that we are probably in an environment where we're at par growth this year domestically is, you know, two and a half to 3% on total, but it's the haves and the have nots. I expect urban to continue to outperform for me year over year basis, just simply because they have more runway of recovery versus 2019. You know, and the demand themes that we're seeing is that while U.S. consumer continues to spend a higher disproportionate amount of their wallet on travel, we are now back to being a net exporter of leisure demand like we started last year. I mean, people say, oh, domestic leisure pulled back. Well, we started exporting more domestic leisure last year. That's why Europe had the best summer ever. That's going to continue in 24. The good thing is you don't have a year-over-year comparable. It's all baked in So, you know, I think domestic leisure demand from '23 to '24 is basically flat or you know So if you're a drive to leisure market, you probably aren't expecting '24 to be substantially better than 23 But you're not going to have this big reversion that you have from '22 to '23. So that's first: domestic leisure is holding it's not probably expanding going in '24, but We are exporting more and more travel than we ever have, and I think that continues in '24, because the U.S. consumer is spending more on services and experiences and less on raw goods. The second thing that is a very strong positive is that group demand continues to outperform. Group demand is up 12, 13% as a whole over '19, and our group pace position for every month for the second half of this year is materially up versus last year. and a corporate group is continuing to be a bright spot as office occupancies are down everywhere, but people still need to meet and do business. And we've seen citywide really kind of uptick starting last year and carrying into this year. The third thing is that I think business transient will continue to recover, but I think it will plateau around 90% of 2019. But as corporate earnings and the stock market continue to do really well, The pie just expands, and at some point in the next two to three years, total business transient room nights consumed will cross over '19, but you won't ever get back to, okay, Deloitte producing as many room nights as they did in '19. It's just a bigger pie, and the expanded pie at some point gets bigger. But another bright spot that we're seeing is foreign inbound is coming back. Last year foreign inbound travelers to the US were negative 16% of 2019 for Q4. It was negative 8 and we're seeing a recovery and a lot of markets of You know people coming back to the US now I do think that the dollar continues to be a headwind the dollar is still very strong to the euro and foreign currencies and it's being resilient why interest rates are staying higher, but we are seeing where I think maybe by the end of this year That q3 q4 you could have foreign inbound be equivalent to 2019 now we're sending more people abroad than we ever have and but now we're starting to see foreign inbound come back and so group And foreign inbound are going to be the bright spots And I think the labor market is starting and showing signs of wage cooling, you know Our wage is growing at kind of four percent. It was at growing seven eight percent last year, and you're seeing an unemployment uptick. I think unemployment crosses 4%. The amount of open jobs to job seekers is coming down. It peaked at two jobs for every job seeker. It's now at one and a half. And at about 1.2, historically, you can keep wage growth at three or so, 3%. So I think we're probably gonna finish the year with wage growth of just under four. But that's a far cry from the 8, 9% year on year that we witnessed the last couple of years. You know, I think that all bodes well for the industry. Absence supply is going to be muted. I think interest rates stay high for a much more protracted period of time. And so if you've got a debt maturity, it's probably not fun. But we're in a good spot. I'm very optimistic. You know, the Caribbean rep part grew 25% last year. And that is, it was the best-performing region in the world. And that is why one of the primary reasons Remington is making a big move into that part of where we consumers are going is the Caribbean. And that's why we want to be part of that. That's what I'm seeing. We're in this interesting period. 

Josiah: We were at a recent investment conference, you were up on stage and you were talking a little bit about kind of a fundamental change in consumer behavior. And I wonder if you could speak a little bit to that in the sense that you're talking about kind of going through the pandemic could have reoriented consumer behavior almost to a level that maybe our grandparents were reorienting around the Great Depression. And you shared some stats before around kind of seeing that we might not see domestic demand dramatically increase, but even if it holds steady, to me, that's really remarkable, right? It seems like an elevated rate. Long way of teeing it up, but I wonder if you could speak just a little bit more to that notion. And I guess, do you still kind of feel that way? What's going on?

Sloan: Yeah, I mean, so I'm 42. I was born in 1981. I am the oldest millennial. And so I like to say one of the things I think makes me relevant is that I'm close enough to the Gen Xers and baby boomers that I can relate to them and manage with them. But I'm close enough to the younger generations that I understand where consumer sentiment, associate sentiment are moving. I use the example I've used this a couple of times. My grandfather was born in 1920. He's now dead. He died in '94. He was a depression-era child. And what you realize with folks that lived through the depression, they're almost all gone now, is that it gave a strong sense of frugality and counting pennies. My grandfather used to always say, pennies make dollars. And that generation that part of that gray generation, that really stuck with them. That depression psychologically changed their behavior, the consumer behavior. And my parents are baby boomers and were born right after World War II. And they really went through the roaring 60s and all the movements of the 70s. And that really impacted their psyche. And quite frankly, some of their buying behavior. I think if you fast forward, you know, I have three children. the psyche of folks that were teenagers in their mid-30s and being locked in their houses going to college remotely, that it really doubled down on the human experience. That when we're all dead and gone from this world, that what matters are people and experiences. And what offers both of those is travel. And you've seen it with the younger generation. They wanna work less. do more. And you've also seen it in spending. You know, people are spending less. It's why companies like Peloton and other, you know, raw goods have pulled back. If you look at any company that is a raw goods producer, they're struggling because people spend less. If you look at the last couple of years, it's all been spent on services and experiences. And so, for sure, for the U.S. consumer for the next couple of decades, COVID will be a tailwind where my children, people in their 20s, and people in their 30s take more vacations. They're willing to go work from a hotel for a couple of weeks. And you're seeing that blended travel and business purpose is not stopping. And so there's just more instances of travel happening, a more disproportionate amount of the American wallet is being spent there. So I always say if in 1995 the average American consumer spent five cents on every dollar on travel. I think that you apply that ratio going forward. It's double that as we go forward and you know, just like the depression influenced my grandfather the COVID pandemic will influence this next generation and how they spend their money and that's just a matter of fact Just like World War Two impacted every vet and some of their behavior what they value And so I think, yeah, it's a good time. Not to mention it's also an industry that is hard to automate. You know, I'd hate to be an attorney right now coming out of law school when, you know, AI very quickly is going to be able to produce a legal document. It's hard for AI to make a hotel bedroom. yeah yeah for sure and I think not enough people are talking about that right now i think everybody gets physical business and we're not going to be intermediated now will there be jobs that get eliminated and more efficient so you operate hotels with fewer people sure but you're never going to replace the physical building itself and I think we've proven out that you know going online and Having Apple Vision is not the same as physically being there. Part of the human spirit is going and seeing our beautiful world that we live in. We're in a business that's not going to be intermediated, regardless of AI.

Josiah: I was listening to something the other day where the hosts were talking about this notion and saying, hey, it's a little bit misleading to look at employment levels and hospitality pre-pandemic because operators have become more efficient and so there's kind of a lower need. But what I'm hearing from you is that you can't just kind of look at that trend line and just assume it goes down to zero. It's like, yes, we become more efficient. But if I'm hearing you right, it's like, okay, to a point and we'll get more efficient and maybe that efficiency gain will show up in better service or like, you know, creating new opportunities that create new revenue, but it's not like, okay, it was at here and now it's here and it's gonna go down to here.

Sloan: You know, that's, is that- That's totally true. I mean, you know, if you look at, so if you started in late 20 and early 21, productivity gains were double digit versus 19. And that has been shrinking as hotels get back more to norms. A good example is housekeeping. It's really only been the last 12 months that all brands, or a majority of brands and the majority of hotels, are cleaning rooms even on stayovers. And so what we've witnessed, albeit we manage mostly upscale, we don't manage any economy or mid-scale, so skewed to upscale and above, that our productivity gains versus 19 have slipped to about six to 7%. And so if you equate productivity to raw labor, you're basically operating a hotel with 93% of the resources you had in 2019. Now, I think we've seen it stabilize, where we're not slipping in productivity gains, and that's held. And then I think AI, does it afford us the ability that in two to three years, that it's 10 or 12% productivity gains? which is what the productivity gains in 22 look like, get back there, yes. And so you operate a hotel on a normalized occupancy basis with 10, 12% less staff. But, you know, the total pie is getting bigger and so We'll continue to hit all-time highs in demand and continue to have more and more employees because we'll have more and more hotels. But I do think it's a fair argument that somewhere between 8% and 15% of hotel labor goes away over a protracted period of time because of automation and an increase in productivity. It's something in that. Maybe there's a catalyst where if robots become Smart enough that there's a real job replacement within housekeeping, but I just don't I've seen some of the technology I think we're a decade away At least so before and then that could be a real hockey stick of labor change And that's what Elon Musk has talked about when you get there, then you've got to have minimum income for folks, right? It's like all of a sudden you're automating 30% of jobs. What are people gonna do? And you know, he's someone who's he's out there and He's maybe not wrong in the future that at some point we may have to have a minimum income for folks if you're talking about job replacement for tens and hundreds of millions of people. But, you know, we got a lot of other things to worry about first.