A new report prepared for the SDTA by Tourism Economics offers plenty of positive news for the regional tourism industry, showing big improvements in visitorship, room demand and other categories for the third quarter of 2021.
Those gains came despite complications caused by the Omicron virus variant, inflation and other factors.
The report also projects a much-welcome sense of optimism for the months ahead, saying that “an improving health situation, easing of pandemic-related restrictions, the normalization of group meetings and corporate travel, and healthy consumer finances are expected to support an upswing in travel activity in the spring and summer of 2022, and lead to a full recovery to 2019 levels in room demand and ADR in 2022.”
Here’s Tourism Economics’ executive summary of the report. You also can download the full document here.
- The third quarter of 2021 exhibited promising results for San Diego’s travel recovery.
Total visitation improved to 76% of 2019 Q3 with 8.0 million visitors, due largely to the
overnight segment reaching 87% of its 2019 Q3 level, while the recovery in day visitation
lagged at only 65% of its 2019 Q3 level. Expenditures indicated a similarly promising
picture, with Q3 visitor expenditures improving to 69% of its 2019 level, up from 57% the
prior quarter. Day visitation from Mexico remains profoundly weak with less than 400,000
visitors in 2021 Q3, compared to 2019 Q3 tallying over 1 million Mexican day visitors.
In the hotel sector, room demand reached 88% of its 2019 Q3 level. The return of hotel
room demand in Q3 improved occupancy to 73.2%, but was still down compared to the 82.3%
occupancy posted in 2019 Q3. Revenue per available room (RevPAR) was down just 3%
relative to 2019 Q3, supported by the average daily room rate (ADR) rising to $201.86 –
9% above the $184.35 recorded in 2019 Q3.
- San Diego visitorship in 2021 improved to 23.8 million visitors from 14.3 million in 2020 –
still 32% shy of the 35.1 million visitors recorded in 2019. Both overnight (+58.8%) and
non-Mexican day visitors (+124.2%) experienced substantial gains in 2021 after severe
declines in 2020, but Mexican day visitation contracted a further 17.1% in 2021. A
prolonged forecasted recovery sees overnight and non-Mexican day visitation recovering
to 2019 levels in 2024, but Mexican day visitation is expected to remain below prepandemic rates through 2025. Expenditures are expected to register 33.2% growth in
2022, led by the recovery in day visitor expenditures, and is forecast to rise another
25.1% in 2022. Visitor expenditures to San Diego are expected to remain below their
2019 benchmark throughout the forecast period. In the hotel sector, recovering room
demand is expected to bolster occupancy to 71.9% in 2022 and push occupancy above
its 2019 watermark in 2024 and 2025. ADR is expected to contract 1.0% in 2022 after
rising 26.7% in 2021. A return to 2019 ADR is projected for 2023. With the still soft
occupancy rate, RevPAR remains well below its 2019 level but is expected to achieve a
full recovery in 2023.
- For the U.S. overall, 2021 has seen rapid advancement in the hotel industry’s recovery.
While room demand in Q1 remained 25.1% weaker than in 2019 and ADR had eroded
22.6% relative to 2019, by Q4, room demand trailed its 2019 level by only 4.2% and ADR
surpassed 2019 prices by 3.3%. There is some softening anticipated in Q1 of 2022, as
the Omicron wave and still lagging business travel recovery are expected to weigh on
hotel performance. However, an improving health situation, easing of pandemic-related
restrictions, the normalization of group meetings and corporate travel, and healthy
consumer finances are expected to support an upswing in travel activity in the spring and
summer of 2022, and lead to a full recovery to 2019 levels in room demand and ADR in
2022 with RevPAR trailing its 2019 level by a mere 0.6%.
- The spread of the Omicron variant and year-end slump in consumer spending put a chill
on the U.S. economy in Q1, with our new baseline seeing GDP essentially flat on the
quarter. But as the Omicron wave recedes, we foresee a spring rebound led by buoyant
demand for in-person services. Given the weak start of the year, we forecast that the
economy will grow 3.5% in 2022 and 2.5% in 2023. While consumer spending is poised
to soften in Q1, we see an improving health situation and strong underlying
fundamentals, including a tight labor market and healthier household balance sheets,
spurring a swift rebound in Q2. Headline inflation firmed 0.1ppt to 5.8% in December
compared to a year earlier – the highest rate since 1982. Elevated inflation will remain a
headwind in 2022 but easing supply constraints should support growth and reduce
inflationary pressures. The FOMC and Chairman Powell struck an even more hawkish
tone at the January policy meeting and confirmed that rate tightening will begin in March
and that balance sheet reduction will begin after rate lift-off. We expect the Fed to raise
rates by 25bps in March, followed by an additional 75bps of rate increases throughout
2022.
- The risk of a shift to a higher inflation regime in advanced economies has risen in the last
six months. Long-term structural drags on inflation are largely still present, so our
baseline view remains that medium-term inflation will stay low. But our views on the risk
of an inflation regime shift have shifted due to several developments. Inflation has been
higher and stickier for longer than expected, and analysis of the composition of inflation
indices in the U.S. suggests broader price pressures are emerging. Strong monetary
growth will contribute to inflation staying elevated, and labor market developments could
also help entrench higher inflation. Long-term inflation expectations have risen but
generally have not broken above the top of the ranges seen in the last 20 years. A shift in
central bank behavior in recent months has reduced market concerns about inflation
slightly, but risks remain clearly higher than six months ago.
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