By Jan Freitag
Senior VP, Strategic Development, STR
This article examines the trends that shaped and will shape the U.S. hotel industry by examining last year’s performance and looking at the major issues facing the U.S. hotel industry.
2011 was a rebound year and performance results were strong but mostly driven by easy comparables. Room demand increased by 5%, to more than 1.06 billion, the highest number of rooms ever sold. That’s an indicator demand from all major sources (business transient, leisure and group) was strong and is expected to remain strong. At the same time, given the lack of available financing, room supply growth was extremely muted and so the number of rooms available grew only 0.6%. This, in turn, led to positive occupancy growth across the board, as well as some pricing power. The year-end U.S. average daily rate was approximately US$101, up 3.6% from 2010. Revenue per available room for the nation increased a very healthy 8.2% to US$61.
Chain Scale Performance
In 2011, the general political discussion centered around the differences between the highest income earner, and the rest of the country—the 99%. In the hotel industry, the 380+ hotels (0.7% of inventory) that make up our luxury chain scale had a different—more positive—performance from all other chain scales. Demand soared 6%, and given the extremely low supply growth of +0.8%, occupancy hit 69.9% for the year.
Hoteliers monetized this opportunity and increased ADR by +5.7% to US$257. Total luxury RevPAR increased +11.1%. In contrast, economy hotels grew ADR by +2.2% (to US$50) and occupancy increased 3.6% to 53.5%, boosting RevPAR to a still healthy 6%. Hotels in the top three scales (luxury, upper-upscale, upscale) all reported occupancy of more than 69%, so hoteliers sold, on average, almost seven out of 10 rooms every night.
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Group and Transient Demand
The strong demand numbers were fueled by a rebound in transient rooms (rooms sold in increments of nine or less).
Hoteliers in 2011 sold more transient rooms than in 2007, pointing at the sustained economic recovery and at a rebound in both business and leisure travel. Group demand (rooms sold in increments of 10 or more) was on par with 2010 and 2007, indicating this part of the business booked at a solid pace. ADR growth on the transient side was strong (+4.7% to US$161) yet group ADR increased only slightly (+2.2% to US$147).
The concern is this lack of group room rate growth will continue into 2012 and beyond, as smaller booking windows make pricing decisions in the future somewhat harder to manage. As the demand environment continues to firm up, we do have an expectation group rooms rates also will increase, though not at a pace that is even close to making up for the discounts of 2008 and 2009.
Based on, among other things, a macroeconomic forecast for gross-domestic-product growth of approximately 2.2% in 2012, we expect room rates will grow approximately 3.5%. The occupancy will not move much (+0.2%) based on a supply and demand growth that is in equilibrium, leading us to our 2012 RevPAR forecast of +3.7%. This is certainly a far cry from the 2011 performance, but nonetheless slow and steady growth.
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