Bay Watch – Tourism and Business Travel

Bay Watch: A Weekly Look into the Bay Area Economy

July 9th, 2024

When it comes to tourism and business travel, the Bay Area has struggled to see the same resurgence as other major cities around the country. Hotel bookings, air traffic, and job growth are still lagging behind peer cities, with little change over the last four years. The lack of business travel to the region and slow return to the office within the region has greatly handicapped the leisure and hospitality industry and caused major problems for hotels and other businesses reliant on tourism. This week’s Bay Watch covers where we are in terms of tourism and business travel recovery, and what we can expect going forward.


First, let’s dive into the service sector.

The Bay Area’s tourism industry has experienced one of the slowest recoveries in the nation. Between shutdowns during the first half of the pandemic, and the fundamental shift to remote work that followed, the region’s tourism and hospitality industry has struggled to stay afloat. Some tourism experts are saying San Francisco tourism may not return to pre-pandemic levels until 2027, while some hotel owners are saying recovery may take up to 7 years. Unsurprisingly, the Leisure and Hospitality industry (which includes jobs in restaurants, bars, hotels, theaters, and stadiums) in the San Francisco metro area (which includes SF, Alameda, Contra Costa, Marin, and San Mateo counties) has been slowest to recover.

Within this industry, the Accommodation sub-sector (which includes workers in hotels, lodging or other short-term accommodation) has struggled most to recoup its pre-pandemic employment, still down nearly a quarter of its pre-pandemic employment. Meanwhile, jobs in the Performing Arts and Spectator Sports made a full recovery at the start of 2022, now having grown 11% beyond its pre-pandemic level. San Francisco’s struggling hotel industry can be largely traced to an outsized reliance on tech and the business travel tech companies brought to the city.


What's happening with the hotel industry?

This week, the San Francisco Business Times reported that the complex consisting of the Hilton San Francisco Union Square and Parc 55 hotels saw its value drop by $1 billion, as a result of continued underperformance. Hotel bookings for Moscone Center Events fell below projections for 2023, but were still a significant improvement over 2022 numbers. SF Travel estimated that roughly 673,000 rooms would be booked for Moscone Center events, which was higher than the reported 618,298 rooms that were actually booked throughout the year. SF Travel’s initial prediction for 2024 is 430,000 rooms booked year-round based on the expectation of 25 events being hosted throughout the city. While the number of events hosted at the Moscone Center varies considerably year to year, 2019 was considered one of San Francisco’s best years ever for convention hotel room bookings - with 49 events in one year. It’s worth noting that some events draw more money and hotel rooms than others (the 2016-2017 “season” included 74 events but didn’t necessarily result in more hotel rooms booked as a result).


Region-wide international travel to the San Francisco Bay Area isn’t expected to return to pre-pandemic levels until 2026. A lack of tourists from China has strained the market in particular, as travel from China accounts for roughly 20% of all international traffic to San Francisco, with the market still only about half recovered. Dozens of hotels are on the brink of foreclosure, with 25 hotels facing loan payments due in 2025. Hotel CEOs have cited crime and homelessness as a major factor in inducing convention bookers and tourists to look elsewhere.


What about air travel?

The Bay Area's three primary airports have made inroads in recouping passengers, but still lag behind other airports in major cities across the country. The San Jose Mineta Airport (SJC) is still down 24% in monthly passenger boardings compared to February 2020, San Francisco International Airport (SFO) is down 8%, and the San Francisco Bay Oakland International Airport (OAK) is down 5%. Sun belt cities continue to lead the charge, where population growth has also fueled passenger growth. Nashville and Denver have seen 19% increases in passenger counts in February 2024 compared to February 2020. Growth at all three regional airports over the past year, particularly at SFO, has been driven by the return of international flight traffic. SFO has made inroads in India and Europe, but has been slow to regain its crucial China passenger traffic.

OAK, meanwhile, has struggled to recover some of the flights that were dropped during the pandemic and has seen its main airline Southwest cut several routes, but the airport remains a strong hub for low-cost flights on other less business travel-reliant airlines like Allegiant and Spirit. Officials at SJC blame the slow rebound in business travel for the slower recovery there. Prior to the pandemic the airport saw international service from Lufthansa, All Nippon Airways, Hainan Airlines, and British Airways, and all four airlines have yet to return to the airport after the pandemic. SJC now offers flights to only one Asian destination—Tokyo Narita—through low-cost airline Zipair Tokyo.


What about public transit?

While public transit use does not necessarily correlate with tourism and business travel, weekly trips fueled by tourism or business meetings on major transit systems like BART and Caltrain could help with the current plateau in ridership due to reduced in-office work. Weekday travel on BART has increased year over year each year since the pandemic began, but growth is slowing and coming to a plateau. Even at our post-pandemic peak of 169,400 average daily weekday BART riders in May 2024, we don't even hit half of our May 2019 ridership of 412,200. This roughly correlates to findings in the Bay Area Council’s Return to Office Survey study, that also found a plateau in the frequency at which employers are bringing their employees back to the office. A Bay Area Council survey conducted last year detailed major safety concerns that riders had around BART. Within that survey upwards of 79% of respondents said that they feel more comfortable riding the train with a BART police officer onboard. BART has invested in additional police officers over the years to alleviate safety concerns, but riders are still slow to recover.

What's next?

The future of tourism and business travel in San Francisco and the Bay Area remains uncertain and challenging. Recovery has been slow, with hotel bookings, air traffic, and job growth still below pre-pandemic levels.  Looking ahead, the Bay Area's tourism and business travel sectors may face a prolonged recovery, with some projections well into 2030 for a full recovery. Key factors include the pace of international visitor return, particularly from Asia, improvements in public safety, and strategic efforts by policymakers and industry stakeholders to revitalize the sector. Significant improvements might only be visible after 2030, with gradual progress expected in the interim.