INTERNATIONAL REPORT—The economic volatility seen in the financial markets has not had a negative impact on hotel industry demand—yet.
Despite rocky debt-ceiling negotiations earlier this month and subsequent sputters in the Dow Jones Industrial Average, the U.S. hotel industry has chugged on largely undeterred.
During the week ending 6 August—the same week Congress reached an 11th-hour debt-ceiling compromise and the Dow dropped 500 points—revenue per available room still grew by 4.8%, according to HotelNewsNow.com’s parent company STR. The following week saw an identical gain, and the week ending 20 August posted a RevPAR increase of 7.6%.
“Hotel demand lags the general economy six to nine months. When things start to get iffy or uncertain, there’s usually not an immediate translation in a decline in hotel demand,” said Joe Long, chief investment officer and executive VP of development for Kimpton Hotels & Restaurants.
Kimpton hasn’t seen any noticeable drops in bookings during the past month, nor have they seen an uptick in cancellations.
In Las Vegas, business is booming for MGM Resorts International. During the company’s second-quarter earnings call, which took place 8 August, CEO Jim Murren said the weekend of 5-7 August was “packed.”
“We've seen zero impact to our call center. We've had no change in our cancellation activity at all,” he said. “We're having a very strong August in terms of occupancy. Great weekend trends. … in the real world, living, watching people come to Las Vegas here, there's been no change at all.”
What do the numbers say?
At the request of HotelNewsNow.com, Pegasus Solutions pulled data on daily electronic bookings made through the GDS and ADS channels from 1 July through 14 August. The analyses found no apparent volume or pattern changes in cancellations globally or regionally.
“With travel, unlike the financial markets, there isn’t a knee-jerk reaction to economic news that’s unfolding, which is expected. There’s not that immediate buy/sell imagery that we get of someone running to the phone,” said Julie Parodi, senior director of strategic planning and analysis for Pegasus and editor of The Pegasus View.
|Julie Parody, senior director of strategic planning and analysis, Pegasus Solutions
Events that do lead to cancellations include natural or manmade disasters and virus outbreaks, she added.
Pegasus found no significant dips in corporate bookings, either.
“Businesses are still seeing earnings and cash-flow improvement, which bodes well for travel spend,” Parodi said. “Corporations are reluctant to give up travel spend because they do understand the value and the competitive edge of that face-to-face travel.”
However, ADS channel results during this time period did suggest a potential slowing in leisure bookings compared to the prior year for North America and Europe. Slower booking activity was more discernable during the first part of the week (9-10 August) in North America and 8-11 August in Europe.
“It’s a rollercoaster ride right now in the financial markets, and that ride has not come to a stop right now,” Parodi said.
At press time, the Dow Jones Industrial Average was down 88.25 points to 11,061.57. Since 1 August, theBaird/STR Hotel Stock Index is down 20.1%, closing Thursday at 1693.99.
Results at the regional level for South America or Africa/Asia/Oceania did not reflect significant changes that could be directly attributable to the financial market news during that time period, Pegasus found.
In the U.S. at least, financial volatility had no discernable impact on bookings for the Labor Day holiday weekend.
“Bookings seem to show an increase by roughly 7% over last year on average for the Friday through Monday of that weekend,” Parodi said. “(Average daily rate) seemed to be still staying ahead of last year. That’s promising news for the travel weekend ahead and suggests that people do not log on to their iPads or mobile phones to make cancellations because of this news.”
The real test, however, will be in the months ahead.
“The things that are happening now, depending on the outcome over the next four or five months, we’ll be able to tell what we’re looking at in the middle of next year,” Kimpton’s Long said.
Taking excerpts from the full report on their U.S. leading indicator, Maria Simos of economic research firm e-forecasting.com said, “Consumer expectations are a key component to our U.S. leading indicator as they undoubtedly are the driving force of the economy. Based on stock market and political volatility to date in August, we expect consumer confidence to drop, which will in turn have several negative implications to the overall economy.
|Maria Simos, e-forecasting.com
“With so much variation, a great deal of uncertainty has settled in the minds of consumers and businesses, which is expected to decrease confidence and limit unnecessary expenditures, such as leisure travel, in the upcoming months.”
E-forecasting.com’s U.S. Hotel Industry Leading indicator fell 0.6% during June after going up by the same amount during May. The indicator leads the industry’s business activity four to five months in advance. The latest monthly change brought the index to a reading of 115.9. The index was set to equal 100 in 2000.
• Read “Hotel Industry Leading indicator loses steam.”