HENDERSONVILLE, Tennessee—The story of the U.S. hotel industry’s recovery is a good one—a tale of demand gains and rate increases and the return of corporate travel. And it’s one Bobby Bowers likes to tell.
The senior VP at research company STR, the parent company of HotelNewsNow.com, talked recovery last week during a wide-ranging interview from STR’s corporate headquarters in Hendersonville, Tennessee. What follows are some high notes:
Demand
“We’ve seen some really significant growth in terms of room demand, especially in 2010,” Bowers said. “That’s again kind of a function of how badly it was damaged or went down in 2009. We saw this really huge snap back, which really was the biggest demand growth that we’ve tracked since STR’s been around.”
Demand growth will begin to moderate as the year progresses—not a sign of slowing momentum, but rather of the more difficult comps from 2010 when the recovery began.
Revenue per available room will continue to improve as a result, though gains will be driven more from increases in average daily rate than the bumps in occupancy that were seen during the previous year.
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Chain-scale price premiums
While occupancy growth drove RevPAR gains during the beginning of the recovery, expect more balanced progress from rate for the remainder of 2011, Bowers said.
That’s especially true of the upper end of the market, where the luxury chain scale has begun to pull away from the other segments.
“You’re also beginning to see that premium that luxury has in terms of room rate beginning to expand again over upper upscale,” Bowers said. “I think that’s probably going to continue to happen throughout the balance of 2011.”
Those rate increases at the upper end of the market will trickle down into the lower segments, he added.
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Transient vs. group
Transient occupancy is back—as it has been for a while, Bowers said.
Group demand has been a bit slower going, which is not surprising given the long-term bookings that were made during the depths of the recession.
“Form that ADR perspective …you saw kind of an inversion there when transient rates actually kind of dropped below group rates because everyone kind of knows group rates are kind of baked in—there’s a longer time frame there,” Bowers said. “… And now that’s beginning to change, too. You’re beginning to see that transient rate kind of come back up again. … I think we’ll probably see that transient rate get back to where we were, say in 2007, faster than obviously group rate will be.”
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Recovery drivers
Bowers believes corporate travel will drive the recovery—if only because leisure travel didn’t experience as precipitous a drop off and doesn’t have as much ground to make up.
Within the corporate segment, group travel will rebound faster than transient, he said.
‘Haves’ and ‘have nots’
“When you look at the demand side of things, demand growth is actually pretty even when you look at the bigger markets against the small ones,” Bowers said.
ADR increases, on the other hand, is not as balanced. Rate-fueled RevPAR is growing, on average, 2% faster in the major urban markets compared to their tertiary counterpart, Bowers said. But those gains are not as much a reflection of unique market dynamics as they are a measure of the market product offerings. Major urban markets tend to have more high-end hotels that are experiencing stronger rebounds.
“The bigger markets … obviously have more upper-end hotels,” Bowers said. “… What’s going to happen is they’re going to be much more volatile in terms of how they act than say a market like Nashville or a market like Tulsa, Oklahoma, or someplace like that. When you look at what happened in the downturn, (the bigger markets) took a pretty significant hit. They’re coming back stronger.”
Gas prices
“Americans view vacation as kind of a right,” Bowers said. “It’s possible that maybe you don’t go quite as far, you don’t drive as far, and maybe you try to stay one fewer night … but we’re still expecting the summer to be good.”
Supply growth
“From that 10,000-foot level, room supply is really going to be muted over the next two years or more,” he said. “… That’s one of those things that’s really going to help drive the health of the industry in general, is the fact that there’s not going to be as much room supply, at least for the next two years or so, so that’s going to be real positive in general.”
Forecast
The forecast will be a top-down affair, Bowers said. The luxury, upper-upscale and upscale hotels will benefit more from a return of the corporate traveler, which, in turn, will propel rates and occupancies higher.
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“When you look at what we think is going to happen for 2011, you’re going to see more growth rates at the upper end—the luxury, upper up and upscale—and again that’s because they have a lot more ground to make up,” he said.
“We’re going to have more groups, more corporate, more confidence from the revenue management angle for those guys to be able to turn down business that they might have accepted over the downturn, and also to be more aggressive on the rate side, too.”
