With the summer travel season kicking off, an election year already well underway, fluctuating gas prices, financial and political drama in Europe and a tentative economic recovery trying to stand on solid footing, hospitality forecasters have plenty to keep track of right now. Sorting through myriad social, economic and political factors that influence the hotel industry can be a challenge, but it is worth noting the continuation of one ongoing trend in particular that has been evident throughout the first half of 2012: strong numbers from the transient travel sector. In fact, transient travel has been trending upward for years now.
One thing catching the industry’s attention is that the bump in transient travel holds true across the board; both leisure travel and business travel have contributed to the increase. The overall trend is an encouraging one for the industry, and the fact that the transient travel gains can be seen across multiple markets and multiple travel categories provides some additional reason for optimism that this momentum might be sustainable. Taking a closer look at how the recent transient travel numbers break down might provide some important insights about what this trend might mean for the industry in the months and years ahead.
According to STR, parent company of HotelNewsNow.com, transient demand increased 18.4% between 2006 and the first part of 2012. It is important to point out that group demand dropped by approximately 6.4% during this same time period, making the transient segment the primary driver of overall demand growth.
While group bookings have made a nice recovery during 2012, transient business continues to perform well. TravelClick reported in March that thetransient segment is showing a 3.7% occupancy increase and a 5.2% increase in average daily rate compared to 2011 numbers.
The lion’s share of transient growth following the 2008 recession was driven by increases in leisure travel, and leisure continues to be a strong driver. But transient business travel has done its share, as well. According to U.S. Travel Outlook, transient grew 6.7% in 2011 and is predicted to grow an additional 3.7% in 2012. The fact that leisure travel and business travel have both contributed to boosting the transient segment over the past few years is indicative of a trend that might have some staying power. The steady (and ongoing) increases in room demand and rates, and consequently revenue per available room, in the wake of the recession have been directly related to sustained growth in the transient segment.
The big question is what happens next? Where does transient travel go from here? Is the increase in transient travel just an optical illusion of sorts—a bigger piece of a smaller pie—or are these numbers indicative of what is really a more significant long-term trend? There are a couple of good reasons to suggest that this might be the latter. One of those revolves around who is doing the traveling. While we may be tempted to think that this trend might be the result of a more mobile and flexible generation of baby boomers getting to a point in their lives where they can do more traveling, growth in this sector actually defies any simplistic demographic profiling. Another interesting data point is where these transient travel gains have accrued. Conventional wisdom might dictate that the mid-level hotel market would see the biggest gains but that has not been the case. Luxury, select service and discount have all seen transient growth, with leisure travel increases spread evenly across all segments. None of this is definitive, but it does provide some evidence that we may be at the start of a broader and more sustainable economic recovery.
The next question is if this bump is sustainable, and these numbers are meaningful in the long term, what can the hotel industry learn from this information? There are certainly some short-term ways to nurture and leverage this trend, with increasingly sophisticated and strategic social-media campaigns being one of the best examples. With approximately 1/3 of all bookings originating online, the Internet provides a great platform to access this segment across multiple verticals by engaging in cross-promotional initiatives and coordinating with travel sites, travel channels and other transient travel-friendly venues.
Aside from the mechanics of transient-travel promotion, the more important takeaway from all of this might be that we simply need to recalibrate our expectations and discard outdated assumptions about where our business is coming from. It also is imperative to begin to appreciate and cater to the transient travel sector (especially the leisure component) more so than in the past. There might be a lesson there for what it will take for the industry to be strong in the future and to continue to diversify in a way that will enable us to not take quite as big of a hit when the next economic downturn arrives. The transient segment and domestic leisure travel together with inbound foreign travel (which we have barely begun to scratch the surface of) might be the kind of backstop we need to complement business travel and make for a more diverse, sustainable and successful future for the hotel industry.
First Hospitality Group, Inc. has been involved in the development, ownership and management of hotels since 1985. Currently, the First Hospitality Group, Inc. portfolio consists primarily of Hilton and Marriott affiliated assets. In addition, First Hospitality Group, Inc. has ownership interests and manages hotels affiliated with InterContinental, Hyatt and Carlson. For further information, visit www.fhginc.com or call Robert Habeeb at 847-299-9040.
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