NASHVILLE, Tennessee—The first thing Randy Smith does each month when a new batch of hotel performance numbers comes in is seasonally adjust the data.
“The key thing about seasonality is that it enables you to compare this month with last month,” said the co-founder of STR, parent company of HotelNewsNow.com, during the “View from the top” panel at the Hotel Data conference.
December, for example, is a historically slow month for the U.S. hotel industry. July, on the other hand, is historically strong.
“You have to factor out that seasonality,” Smith said.
This provides a clearer picture of trends, such as the “absolutely amazing” month-to-month increase in demand during the past year and a half that is seeing the industry consistently sell more than 90 million roomnights on a seasonally adjusted basis.
But while hotel performance numbers in a vacuum are promising, the trends are less bullish when compared to other key economic indicators.
One that Smith keeps an eye on in particular: gross private domestic investment, which he said is closely related to demand.
“Companies out there have plenty of cash. There’s tons of cash floating around. There’s billions of dollars with a lot of the companies out there. They’re not spending it, so private investment is shrinking,” he said. “Those are issues that really concern us. Without further private investment … that’s why we’re concerned about where demand goes from this point.”
“Without private investment really driving the economy forward, we think lodging demand in the next 18 months … is going to be much more difficult to come by. We’ve been in a real sweet spot for the past year,” he added.
Smith shed light on several other topics during the 75-minute session, including:
Anemic average daily rates
“We haven’t really gotten anywhere,” Smith said of average daily rates.
As case in point, he showed attendees inflation adjusted real ADR of $52.32 for 1987, when STR began tracking data for the U.S. hotel industry. Inflation adjusted real ADR for 2011? Only $51.79.
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Randy Smith
STR
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Still, Smith is bullish on rates.
“I’m not real concerned about where our rates are today,” he said, adding revenue managers have done a good job at pushing rate increases again.
“The mistake,” Smith said, “was made a couple of years ago,” when hoteliers discounted ADR by nearly double digits.
Asked whether he thought hoteliers would cut rates so severely during the next downtick, Smith said, “It’s going to happen, (but) it shouldn’t.”
The economy segment stagnates
“The economy segment is a fraction of what it used to be,” Smith said.
During the 1980s, the segment led the industry in terms of occupancies, with entire brands consistently running at more than 90% capacity. But the 1990s downturn hit the chain scale hard, “and they never really rebounded from that downturn.”
The customer base for the economy segment also has eroded, Smith said. And now the hotel stock itself has gotten tired and haggard.
“They’re in a real quandary,” Smith said.
That said, the acquisition in May of the Motel 6 brand was a good deal for Blackstone Real Estate Partners VII, a Blackstone Group Affiliate. The company acquired Motel 6 and Studio 6 from Accor for $1.9 billion. “It was a good price,” Smith said.
“That was probably one of the largest untapped potential markets in this country. If we can make the (economy) segment relevant again, I really think there are a lot of travelers out there that would utilize that type of property.”
Revenue management
Despite the industry’s dramatic discounting during late 2008 and 2009, Smith spoke highly of revenue managers.
“I think revenue mangers today are doing a really good job. That’s a job that didn’t exist when I started this business,” he said. “… That thing ceased to exist 20 years ago. And now revenue management is so complex today.”
Smith expressed some remorse for adding such transparency to the hotel industry through STR’s benchmarking data.
“I often wonder if transparency of rates has really been that good for our industry,” he said, comparing the practice to playing in a poker game when players can look at each other’s cards.
“How do you make a bet in that scenario?”
Election effects
Smith said the U.S. presidential election will not have a dramatic impact on hotel performance.
“The issue is we really won’t have a lot of clarity until January 1. We have to do something with this fiscal cliff.” That’s why a lot of companies are sitting on the sideline with cash, he added. “They’re just not sure where it’s going.”
Outpacing the OTAs
Smith said online travel agencies are a “great asset” for the hotel industry, but they come at a price.
“They charge too much,” he said. “The commissions that they get from us are basically too high.”
That’s about to change, however, as a swell of new players take bold moves that will forever change the distribution landscape. Smith pointed to Apple as a prime example, describing a future scenario in which a traveler could ask Siri, the voice recognition software on the iPhone, to find and book hotel rooms.
“That is going to change the way in which people book rooms to such an extent that it’s going to be nothing like we’ve ever seen before,” he said.
Will the change be better for the industry? “Probably not,” Smith said. However, the cost of the transition will prove challenging.
“The adoption of that is going to be slow, difficult, ugly. There will be mistakes made. We will screw it up, no question.”
