BOULDER, Colorado—With all of the tornadic activity that has occurred in recent weeks through the Midwest, and as we approach the one-year anniversary of the devastating tornado that hit Tuscaloosa, Alabama, it is difficult to look at the positive business impact these damaging, life-altering events can have.
However, the unfortunate reality is these types of unforeseen disasters typically have a positive impact on the local and regional hotel markets. This is unlike hurricanes, which often can impact large regions days prior and can have even longer-lasting effects.
Looking back on the hotel performance in Birmingham and Tuscaloosa during the months subsequent to the tornadoes that ripped through the area 27 April 2011, it is easy to discern there was a significant uptick in demand and occupancy immediately following the incident. The demand is derived from numerous sources, including media outlets covering the disaster, aid workers, insurance professionals, Federal Emergency Management Agency officials, displaced residents and families visiting to help loved ones.
As demonstrated in the chart below—which shows year-over-year change in daily occupancy for Birmingham from 27 April 2011 through 31 July 2011—the induced demand lasted for approximately five weeks. For the first three weeks, occupancy was an astounding 40% higher than the previous year. However, this level of increase also includes the underlying growth in the market from the economic recovery.
When looking at average rate, it was refreshing to note hoteliers did not appear to gouge customers during this time period by ramping up room rates. For the most part, room rate growth maintained a consistent pace.
Nevertheless, the increase in roomnight demand had a significant positive impact on overall room revenue for the Birmingham and Tuscaloosa markets.
To estimate the level of impact, we interpolated the “normal” room revenue growth that most likely would have occurred during the five-week period and subtracted the resulting room revenue from the actual room revenue achieved during the period.
The chart below shows the calculated room revenue assuming normal growth that would have occurred year-over-year during the five-week period as well as the room revenue impact that resulted from the induced demand.
Based on this analysis, Birmingham’s hotel market received a $10-million room revenue boost from the disaster during the five-week period. Using the same methodology, the tornado had a $1-million room revenue impact on room revenue in Tuscaloosa’s hotel market as well.
