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Hoteliers march on despite macro troubles
March 21 2013

There’s no shortage of black swans circling the hotel sector, but performance has risen above the economic maelstrom thus far, speakers said during the Hunter Hotel Conference.

Highlights
  • U.S. hotels recorded a record $16.6 billion of revenue during the first two months of 2013, according to STR’s Jan Freitag.
  • “The economy is waiting to break out,” economist Rajeev Dhawan said.
  • Transient business is leading the recovery, speakers said.

ATLANTA—Sequestration, European debt, the closure of banks in Cyprus, the debt ceiling. Judging by the number of black swan events making media waves, one might think the world is ending. But speakers during the first day of the 25th annual Hunter Hotel Conference on Wednesday said the U.S. hotel sector is still alive and kicking—for now, at least.

Hotel performance thus far continues to chug along despite dour economic news, speakers said during a statistics session at the conference. During January and February of this year, U.S. hotels recorded $16.6 billion in room revenue, the highest level ever, said Jan Freitag, senior VP of global development at STR, parent company of HotelNewsNow.com.

“It’s certainly a very, very great start to the year, and we’ll probably continue to break records,” he said.

Through the first 11 weeks of 2013, occupancy and revenue per available room have notched year-over-year increases during each week, Freitag said. And average daily rate also has been up in all but one of those weeks.

The upcycle being enjoyed by the industry might last a while, Freitag noted. He told the crowd that the previous upcycle lasted for 65 months; the U.S. is 30 months into the current cycle.

“For the next year or two, we think life is pretty good,” he said.

Tim Hart, an executive VP of business intelligence solutions at TravelClick, also said the outlook for the hotel industry is positive. He said roomnights on the books for the remainder of 2013 are 2% higher than they were at this point a year ago.

The overall economy also is managing to hold together for the time being, Rajeev Dhawan, director and professor of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business, said prior to the start of the stats session.

He is encouraged by the strong performance of the private sector component of gross domestic product. Strip away government spending from GDP, and 2014 GDP is forecast to show growth of 2.5% while 2015 GDP would be up by 3%.

“What matters for you is the private side,” he said.

He also said the sequester has had a mostly localized impact on various economies. For instance, the loss of government business might have a big effect on a city located near a government base, while a city 100 miles away will feel no effect at all. Overall, though, he said the sequester poses no danger of shutting down the U.S. economy.

“The economy is waiting to break out,” he said.

Hotel values are still restrained, said Mark Woodworth, president of PKF Hospitality Research.

“We have a 24-hour lease,” he said of hotels. “There is a sense that the marketplace is penalizing hotels by the method by which we earn our revenues.”

Transient headwinds
There are other headwinds facing the industry as well, speakers said.

For one, Hart said it’s troublesome that transient business is outperforming group business for hotels and that group business is weakening. Forward-looking bookings show that for transient business and leisure, roomnights sold are up by 2.8% and 2.4%, respectively, while group roomnights sold are up only 1.7%.

ADR for transient business and leisure are up 5.6% and 4.4%, respectively. ADR for group business has edged up by just 0.8%.

“I think the strength of pricing … will be affected by how the group story unfolds,” Hart said.

Freitag also mentioned the impact transient business is having on the overall hotel sector. “The current upturn is completely transient-driven,” he said.

It’s important to have a solid base of group business off of which to build, Freitag said. But instead, the upturn in transient business is dampening ADR.

“We can’t get past that because the base just isn’t there,” Freitag said.

Freitag presented charts that showed RevPARs in many markets reached peaks hit during the last upcycle. Those charts, however, did not show inflation-adjusted RevPAR.

“I didn’t do that chart,” Freitag said. “It’s kind of depressing.”

COMMENTS   Show All
Anonymous
3/21/2013 1:17:00 PM
"Sequestration, European debt, the closure of banks in Cyprus, the debt ceiling. Judging by the number of black swan events making media waves, one might think the world is ending." Only the closure of banks in Cyprus qualifies as a black swan.
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