Tourists love San Francisco, right? This summer season will tell

For Allan Graves, the founder of Love Tours, Inc., the sign of a recovering San Francisco takes the form of his fleet of psychedelia-adorned Volkswagen buses puttering around the hills to show tourists the city’s dazzling sights.   

Love Tours steadily grew from humble beginnings as a two-man operation to 20 employees, including tour guides, mechanics and marketing staff. Then the pandemic hit, and a 2019 peak for San Francisco’s tourism industry turned into a deep trough.

As he revs up his engines for a 2022 summer season, Graves says revenue is back up to somewhere around 70% of 2019’s benchmark, a marked improvement from even one year ago. Still, he’s keeping his eyes on next year for a full recovery. 

“In some instances, it does feel like 2019 at times. It feels like full employment, full capacity and I check our system and we’re booked up,” Graves said. “Other times it's ambiguous, it’s harder to determine who’s traveling when and where and there’s not really as much consistency.”

He’s seen a greater number of last-minute bookings, which made it difficult to plan ahead and conduct financial forecasting, although Graves is happy for the business. One bright spot has been a greater number of corporate clients, who have been booking tours as part of team-building events meant to foster culture in a remote working world. 

Prior to the pandemic, hospitality and tourism was one of the strongest sectors in the city’s economy, buoyed by robust international and business travel and—to a lesser extent—domestic vacationers. Now a sense of wary optimism pervades operators and observers as they chart a recovery amid the risk of a recession. 

Joe D'Alessandro, the CEO and president of SF Travel, the city’s tourism board, said he’s feeling much better than he has over the past two and a half years while undergoing a litany of setbacks that hit San Francisco harder than many major cities around the country.

Signs are pointing in the right direction: Average occupancy rates at local hotels are nearly reaching 70%, the highest number yet during the pandemic, average room rates are also starting to rebound, and there are 34 conventions on the books at Moscone Center this year compared to just five in 2021. Enplanements continue to rise alongside a busy slate of summer events, including the return of the SF Pride and music festivals like SFJazz and Outside Lands. 

But the industry has a long ways to go. Ironically, what was once a major strength of local tourism—a mix of business and leisure travel—turned into a weakness as pandemic restrictions shut down offices, canceled group meetings and closed borders. And domestic vacationers, like the ones Graves typically hosts nowadays, can’t nearly make up the difference.

Conspicuously absent from the city’s tourist areas are international tourists, and operators are feeling the pain. 

That’s because visitors from abroad are the city’s most lucrative guests: In 2019, international visitors made up less than 30% of all overnight visitors, but were responsible for more than 60% of all spending. San Francisco, traditionally a hub for travel from Asia, has seen a major drop-off due to tight travel restrictions in China, Japan and Taiwan.

Recently, however, the United States removed its last major restriction for international travelers, lifting the requirement that they test negative for Covid-19 prior to coming to the country. 

Pent-up demand for air travel, along with understaffing issues, have recently led to long waits and restaurant closures at SFO.

D'Alessandro joined Mayor London Breed and other city leaders on a tour through Europe in March meant to help drum up support for new flight routes between SFO and European cities. He said they kept hearing about pent-up demand for international travel, with tourists in Europe holding billions of dollars in travel vouchers from plans canceled during the pandemic.   

“The deal is that every market in the world is anxious to get their travel industry back, everyone is making the argument to ‘come to us’,” D'Alessandro said. “We have to continue to tell a really compelling story about San Francisco. If we’re not reminding people, then they forget about us and go somewhere else.”

SF Travel laid off 60% of its staff in the first few weeks of the pandemic, and cut all of its marketing. The organization, which is funded by an assessment on the city's hotels, is still at less than 50% of its typical budget, according to D’Alessandro, but has become much more aggressive in its promotional activities and campaigns. 

Part of this has been an evolution of a marketing message, from a focus on the city’s strong public health response just as travel was just getting off the ground to a message that focuses more on the San Francisco’s outdoor opportunities, including new parks like Russian Hill’s Francisco Park and the Presidio’s Battery Bluff and Tunnel Tops.

There are signs that the tide is starting to turn on the revival of business travel, including the return of the RSA Conference to the Moscone Center this month. But the numbers are still way off from 2019’s $2.4 billion in business travel revenue.

According to a report from the American Hotel & Lodging Association, San Francisco is among the slowest major markets to recover business travelers, with an estimated $1.68 billion shortfall compared to business travel revenue in 2019. 

On the other end of the spectrum is Las Vegas, which is expected to actually grow its business travel revenue this year compared to 2019. The American Hotel & Lodging projected Las Vegas, an increasingly popular location for conventions, would see its business travel revenue grow by more than 17%. 

To stay competitive, D'Alessandro said that SF Travel has been taking a more subtle approach to enticing group and business travel.

“We have more availability than nearly anytime in the past for small group meetings, conventions and business travelers,” he said, predicting it will take until 2024 for a full recovery of business travel. “We’re saying if you’ve had a hard time getting to the city before, this might be a good time to try it out.”

Kelly Powers, the director of the Hotel Council of San Francisco, said one phenomenon that has emerged more strongly in recent months has been a new “bleisure” segment, which refers to a combination of business and leisure travel. 

“We’re seeing business travelers bring their families and tack on a couple of extra days onto their trip to enjoy being in San Francisco,” Powers said. 

Powers struck a sunny tune about a general recovery in the local hotel industry, citing reports from some general managers that they may see a full return sometime in 2023. 

“A more robust recovery for hotels in the San Francisco market started in March. Each subsequent month the hotels in the market have been posting the best topline numbers since the pandemic started,” said Emmy Hise, senior director of hospitality market analytics at real estate firm CoStar, though she cautioned that a full recovery could take years.

A number of new hotels or long-dormant hotels have opened their doors in recent weeks, including the 1,024-room Parc 55, the 200-room 1 Hotel San Francisco and the 419-room Beacon Grand Hotel, formerly the Sir Francis Drake Hotel.    

And interestingly, more hotels are changing hands, typically at a higher price than in previous years, a possible vote of confidence in the continued appeal of San Francisco as a tourist destination.

Hospitality and tourism saw heavy job losses and furloughs in the early days of the pandemic, with nearly 40,000 hospitality workers in San Francisco losing their jobs between Feb 2020 and March 2022, according to job numbers cited by the San Francisco Controller’s Office. 

While the industry has been seeing stronger employment growth over the past few months, finding workers remains a struggle for bars, restaurants and hotels crawling out of the pandemic. And labor groups say hotels should do more to entice back workers back as demand continues to rise. 

Anand Singh, president of Unite Here Local 2, which represents more than 15,000 hotel and food service workers across the Bay Area, estimated that only around 50-60% of the union’s members are back to work.

“I think it’s important to note that our union is among the biggest proponents of getting tourism back in San Francisco,” Singh said. “At the same time, we have a particularly difficult time with the hotel industry overall driven by national actors keeping labor costs as low as possible.”

He cited a Hilton earnings call from last February where executives spoke about creating “more labor efficiencies” in housekeeping and food and beverage service as a pathway to higher margins.

Deon Dong, a Unite Here Local 2 member and a housekeeper at the Fairmont Hotel, said she was out of work for nine months as the hotel remained shut down. She’s now back at work, but having to take on the additional tasks previously assigned to minibar attendants who have not been brought back.

“It’s more work they’re giving us and we have to spend our break time or lunchtime to finish those jobs. It’s harder than it’s ever been,” Dong said, adding that the hotel puts many workers on call only to contact them at the last minute to pick up a shift. 

Singh acknowledged that San Francisco’s hotel market has been particularly hard hit, but argued it’s time to start bringing workers back amid more steady signs of a turnaround. The union is on the cusp of collective bargaining negotiations for a new labor contract. Singh said with the challenges of the last two years “this isn’t necessarily the year to have a knockdown, drag out war with this industry” but that the pandemic led them to consider two priorities for their new labor agreement: expanded healthcare benefits and a commitment to daily room cleaning.

“It does feel like there’s light at the end of the tunnel and certainly as the industry we’re seeing hotels fill up, not just on the odd weekend, but some consistency,” Singh said. “Now that we’re recovering we can’t be keeping so many people at home and loading up as much work as possible on the few you call in.”

When asked what headwinds still exist for the industry, D'Alessandro of SF Travel raised the specter of a recession that could impact people’s decision to travel. 

He also mentioned continuing progress on street cleanliness and public safety as city issues that still need to be addressed. 

Graves, the owner of Love Tours, says his business has been forced to get used to doing more with less and has felt the brunt of inflation on gas prices and labor costs. A marketing budget that went to zero during the pandemic has still not returned, and he only has six tour guides, compared to the 15 he had before the pandemic.  

“We pay them more than we did in the past, both because of rising costs and we want to make sure that they feel like they can make a living and don’t need a second job to live the life they want to live,” Graves said.  

But even as he’s cheering for a full return of his industry, he has also been using his business to contend with the challenges facing San Francisco residents. 

As part of his company’s tours, he takes visitors through the Tenderloin to help explain the homelessness crisis and build empathy for those struggling on the streets. 

“Many tours completely avoid it and tell guests not to go there, but we go right to the heart of it and we have a conversation about how this is not a lifestyle people grow up wanting. That they’re here because of mental health issues or abuse or other challenges,” Graves said. 

“We show the reality of it and I think people walk away with a better understanding of the homelessness problem, and we find joy in changing the narrative.”