INTERNATIONAL REPORT—Significant year-over-year hotel demand declines continued into April, according to data from Pegasus Solutions, but one executive said the continuous bookings slowdown is a result of still-shaky economies and is not indicative of a downturn in the cycle.
Pegasus collects data from more than 63,000 travel agencies—online and off—and processes nearly 5 billon transactions per month. The company reported this week that the number of global corporate bookings—those made through the global distribution system—were down 0.5% when compared to April 2011. On the leisure side—bookings made through Pegasus’ OTA partners—global bookings were down 6.4% compared to April 2011.
Data from North America showed even more significant demand declines. Corporate hotel bookings in North America were down 5.8% when compared to April last year; and leisure bookings in North America were 7.9% below the number of bookings made last year.
Those year-over-year decreases in April follow even more dramatic year-over-year decreases during March, which saw global corporate bookings down 7.5% year over year and leisure global bookings were down 7.9%.
However, Julie Parodi, senior director of strategic planning for Pegasus and editor of The Pegasus View, said she doesn’t expect the number of bookings to continue to decline. Rather, she said, the global hotel industry has reached a “growth plateau” due to a lagging global economic recovery.
“The global economic recovery is limping along,” she said. “As that improves and gains more momentum, (the hotel industry) too will start to gain more of its momentum. I don’t see it continuing to recede by any means.”
Parodi said hotel room demand rebounded from the downturn faster than anyone expected and had an incredibly strong year in 2011, which made for difficult year-over-year comparisons in 2012.
“It’s just slower on the uptake to gain additional growth,” she said. “What we’ve seen—even as things were down, travel remained resilient. Travel grew faster than other industries.”
As is typical in past up-cycles, rate growth in the hotel industry has followed demand growth. While demand growth seems to have leveled off, hoteliers continue to exercise pricing power on both the corporate and leisure sides.
“That’s because there has to be the demand to support the rate growth,” Parodi said. ”The demand raises have stabilized and now the rates will start to recover. Rates couldn’t be making the progress they are if there wasn’t the demand to support it.”
According to Pegasus’ transaction data, global corporate rates were up 5.5% in April compared to April 2011. April global leisure rates were up 9.1% year over year.
In North America, corporate average daily rate set a new year-over-year growth record—up 9.3% when compared to April 2011. Prior to April, the highest year-over-year corporate rate increase in North America was 7.1% (in February 2012). On the leisure side, April recorded a 9.1% year-over-year global rate growth. North America’s April ADR for leisure grew by 7.4% over prior year, which is close to the record year-over-year grown of 8.5% set in March 2012.
“The rates on both sides—for corporate and leisure—are really gaining strides,” Parodi said. “It’s still fair to say that corporate travel is the mainstay—it’s going to be the industry’s bread and butter. Leisure has become resilient as well, but leisure is more sensitive (to hiccups) and less stable. It will be a little bit more reactive. Consumers will tend to be more cautious.”
Parodi said companies are more closely analyzing profitability when sending staff members on the road. Road warriors continue to hit the highways and the airways, she said, even though fares are high.
“Companies are continuing to keep travel in the budget,” she said, “but they’re cutting in other areas. Average food expense has declined. They’re finding other ways to counter the ADR and fare hikes.”
She said recent government actions to curb overspending will be isolated to those who are taking advantage of their travel budgets.
“When it gets publicized there will be some knee-jerk reaction,” Parodi said. “Companies are wanting to curb frivolous spending. Companies don’t want to foot personal bills or what’s above and beyond corporate policy. They’re really concerned about productive travel.”