Editor's note: Companies like Airbnb might have flashy business models... But that doesn't make them industry-killers. Our new colleague Brad Thomas, from our corporate affiliate Wide Moat Research, sees a shift coming that will boost legacy hotel chains. In today's piece – adapted from an issue of his Wide Moat Daily e-letter – Brad explains the tailwinds pushing hotels higher once again...

There's a beautiful little Airbnb (ABNB) up in the Poconos that – if the pictures are to be believed – looks like it's right out of a Thomas Kinkade painting.

Better yet, when I last looked, the price had just dropped from $202 per night to $163 – for a total of $1,195 for five days!

If you're wondering if your basic math skills are off... they're not. Because $163 times 5 is actually $815, not $1,195.

It's just that there's an additional $150 cleaning fee and $136 service fee tacked onto your "final" price. And, incidentally, it doesn't include taxes (nearly $95).

Not so inviting after all.

But nearby, you can find a Best Western inn for $98 per night. Rooms at the Holiday Inn Express can be found for $107. And there's a lovely bed-and-breakfast for $155.

Admittedly, it's not apples to apples. Each option comes with its own perks and drawbacks.

But contrary to what many predicted only a few years ago, the Airbnb economy has not signaled the death knell of the traditional lodging industry.

Today, we'll have a look at it...

It wasn't long ago that the business world was abuzz with speculation over the downfall of hotels. Right after Airbnb launched in August 2008, people were in love with the concept. By March 2009, the website boasted 10,000 users and 2,500 listings.

Today, nobody denies that Airbnb and Vrbo have taken a chunk of the market from hotels. But I was always skeptical that short-term rentals would be an apocalypse for traditional lodging...

For one, Airbnb pricing is not always transparent. For another, there are individual horror stories of dirty or dangerous rental homes that look nothing like the posting.

Most of all, individual rentals can't hope to compete with traditional hotels' greatest assets: their brands.

Check into a Marriott (MAR), Hilton Worldwide (HLT), or Wyndham Hotels & Resorts (WH) anywhere in the world, and you will be met with the same thing – consistency. These properties are consistently clean, consistently safe, consistently well-managed, and consistently priced.

That's why Hotel Dive, a hotel industry website, reported how "overwhelmingly optimistic" guests were at the annual Lodging Conference in October.

Take Kevin Davis, the CEO of JLL Hotels & Hospitality's Americas division. He said he expected hotel deal activity to increase the rest of the year. And as interest rates decline, 2025 may be even better...

It's like a boulder at the top of a hill. It kind of starts small and slowly. But as it starts to go down the hill, it gets bigger and it goes faster. I think that describes what the transaction market will be like next year.

Highgate CEO Arash Azarbarzin added...

The supply has never been so low. New construction has never been so low. So with the interest rate coming into place, I think the investment horizon is going to be very bright for 2025.

This isn't to say the industry doesn't still suffer from issues, such as paying and retaining employees. With blue-collar wages rising across the board, hotels have been forced to offer better salaries and benefits.

And the cost of everything else – like food, replacement items, energy, and repairs – is cutting into hoteliers' profits as well.

However, investors have even more reasons to be optimistic.

One very big reason why the lodging industry looks so bright right now is the return of global business travel. This kind of corporate spending may even surpass what we saw in 2019.

That final pre-pandemic year was very good in this regard. Yet 2024 could see a 6.2% rise since then, to a record $1.5 trillion.

That's thanks to the rising demand for workers to come back to the office. Business leaders worldwide are reinforcing the need for a hands-on, face-to-face experience. That's significant, considering that business spending accounts for a third of national and international hospitality chains' profits, if not more.

While personal excursions have been on a notable rise since 2022, tepid corporate bookings have weighed on the industry... until now.

So, if you (like the insiders) are bullish on traditional hotels, there are plenty of lodging real estate investment trusts ("REITs") to mull over...

Some are large-cap REITS, like Host Hotels & Resorts (HST). But you can also consider small-cap companies like Ryman Hospitality Properties (RHP), which is up about 7% this year.

These aren't official recommendations. They're just two examples that are making good headway in the strong hospitality industry. So if you're at all interested in the space, this could be a good place to start.

Regards,

Brad Thomas

Editor's note: Over his 35-year career, Brad has forged strong ties in the real estate market... and gained a deep contact list of multimillionaires and billionaires, including the current president-elect.

Now, Brad is opening up an opportunity to access his best ideas – starting with the shortlist of investments that he believes could hand you the biggest gains under the new administration. But this offer ends at midnight tonight... Get the details here.