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Half-year performance reveals rays of light
July 15 2009

Demand, ADR declines and business-mix metrics offer potential signs of hope for the U.S. hotel industry.

By Bobby Bowers
Senior VP, Operations, STR
bobby@smithtravelresearch.com

Editor’s note: This is a preview of a breakout session to be held during the inaugural Hotel Data Conference presented by Magnuson Hotels in August (see below for more conference information, or by visiting www.HotelDataConference.com.)

HENDERSONVILLE, Tennessee–As the U.S. lodging industry moves into the second half of 2009, it’s a good opportunity to review first-half market performance and look for clues to what’s ahead.

By almost any measure, 2009 has been an extraordinarily challenging year. A weak economy combined with unemployment levels not seen in more than 25 years have been a gut shot to the hotel industry.

Based on May year-to-date numbers, demand (rooms sold) declined more than 9 percent in the top 25 markets (excluding Las Vegas) and just under 8 percent in smaller markets (the remaining 136 U.S. markets tracked by Smith Travel Research). At the same time, room supply increased more than 3 percent in both the top 25 markets and all other markets. The combination of weak demand and above-long-term-trend supply growth pushed occupancy down nearly 12 percent in the top 25 and almost 11 percent elsewhere.

Average daily room rates also have suffered across all markets, but much more significantly in the top 25. Soft demand and the heavy reduction of premium-rated business resulted in ADR declines of 10.6 percent in large markets, while rates in smaller markets fell 6.7 percent in the first five months of 2009. Markets like New York (-22.9 percent), Phoenix (-15.8 percent) and Chicago (-14.1) suffered the biggest rate hits.

The combination of drastically decreased occupancy and room rate resulted in steep revenue per available room declines. Top 25 market RevPAR plunged more than 21 percent, while RevPAR in smaller markets dropped nearly 17 percent. These declines are, by far, the largest May year-to-date decreases seen in the U.S. lodging industry since STR began tracking performance data in 1987.

June performance did not offer much improvement. The 28-day numbers as of 27 June show total U.S. industry occupancy down 11.1 percent and ADR down nearly 10 percent, resulting in a RevPAR decline of just under 20 percent.

Data through 4 July provided somewhat better news. In the top 25 markets, demand seems to have stabilized and is showing some improvement, while ADR change trends are looking somewhat better. Outside the top 25, demand is trending upward and ADR declines seem to have stabilized. Does this signal the beginnings of a move up from the bottom?

Another potential ray of light can be found in the business mix metrics tracked by STR. Transient occupancy appears to be in the early stages of stabilizing at upper-end hotels in larger markets. Based on the latest 28-day data as of 4 July, 15 markets in the top 25 had positive transient occupancy movements. Group occupancy still is very weak, however—only one market had positive occupancy growth. Transient and group ADR also remain weak.

Previous cycles indicate that occupancy and ADR changes in the top 25 markets and smaller markets track directionally the same. Historically, larger markets have experienced more occupancy and ADR volatility than smaller markets. In the current cycle, larger markets have taken a bigger ADR hit (from a higher absolute ADR), in line with historical trends. Twelve-month occupancy is down identically in both market groups, though smaller markets have dropped from a lower base. The resulting RevPAR is down just over 11 percent in the top 25 and just under 10 percent in smaller markets.

What can we expect for the balance of 2009 and beyond? Our belief is that demand will begin to stabilize (get “less worse”) in the second half of 2009, but continued supply growth, particularly in larger metro areas, will result in flat to declining occupancy. ADR likely will face continued pressure from discounting and a shortage of premium-rated, corporate transient and group business. Stealing share will be the order of the day. Unlike the 2001-2002 downturn, we expect a more protracted recovery tied to improvement in the job market and overall economic growth.

We will take a more detailed look at these issues at STR’s Hotel Data Conference, 4-5 August in Nashville. Hope to see you there.

About the Hotel Data Conference

Editor’s note: In preparation for the upcoming Hotel Data Conference, session coordinators and moderators are writing weekly articles about their topics for HotelNewsNow.com.

The Hotel Data Conference presented by Magnuson Hotels will be held August 4-5 at the Renaissance Nashville Hotel in Nashville, Tennessee. The conference will cover many topics such as: U.S. hotel industry forecasts from STR, PKF Consulting, and PricewaterhouseCoopers; revenue-management techniques during a recession; consumer business and leisure travel; hotel demand and industry cycle; and STR data overviews, including top markets, customer segments, chain scale, pipeline and hotel operation statistics.

Speakers and panelists at the conference include: Mark Lomanno, president of STR; Scott Berman, the U.S. industry leader of the Hospitality and Leisure Consulting Group of PricewaterhouseCoopers L.L.P.; Brian Ferguson, vice president of supply strategy and analysis for Expedia, Inc.; Kate Henriksen, senior vice president of investment and portfolio management at RLJ; Robert Morse, senior director of corporate revenue management for White Lodging; Webster O’Brien, vice president of SH&E; Gary Portuesi, vice president of lodging account development for American Express; Mark Woodworth, executive vice president of PKF Consulting; Maria Simos, CEO of e-forecasting.com; Dr. Evangelos Otto Simos, strategist and chief economist at e-forecasting.com; Nate Fristoe, director of RRC Associates; Robert Bowers, Jr., senior vice president of operations for STR; Vail Brown, vice president of global sales and marketing for STR; Brad Garner, vice president of operations and client relations for STR; Duane Vinson, vice president of content management for STR.  Moderators include Jeff Higley, vice president of digital media and communications for STR and Lana Yoshii, vice president of new product development for STR.

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