NASHVILLE, Tennessee—The situation in the hotel industry might be starting to stabilize, but the executives at Smith Travel Research aren’t convinced there’s sunny skies on the immediate horizon. In fact, the usually optimistic STR has joined other prognosticators in releasing a revised forecast and it paints a fairly bleak picture for the rest of 2009.
The revised forecasts for the rest of the summer season, for the remainder of 2009 and for 2010 are part of a new STR program that will update the forecasts each month. Mark Lomanno, STR’s president, said it’s important that forecasts be updated and delivered on a regular basis because it allows the industry to better understand where the numbers come from.
“One of the things we noticed with forecasting is that people in the forecasting business, STR included, tend to revise their forecasts when they see a reason to do that,” Lomanno said. “What we would like to do going forward is to put ourselves on a schedule to forecast on a month-by-month schedule.”
STR's revised forecast
View STR's forecast slide presentation.
View Mark Lomanno break down the revised forecast in a video interview.
Lomanno said the company each month will use information from data partner e-forecasting.com, review new economic variables that are released, look at the latest month’s lodging industry performance and supply pipeline, talk to its contacts about what the economic climate is looking like to them, examine future bookings, and discuss the results before releasing its revised forecasts.
“We can say ‘here’s our summer forecast,’ ‘here’s our convention season forecast,’ ‘here’s our first-quarter forecast,’” he said. “You can kind of make it more finite and at the same time potentially make it more accurate by not building up to the year-end numbers as if that’s where you start. You want to get to that by aggregating month by month.”
Economic variables used in the monthly forecasting model will include employment figures, consumers’ disposable income data, the consumer price index, gross domestic product, and the usual lodging data that goes into a forecast, according to Lomanno.
“We look at how well it’s performed historically versus what’s actually happened, and we’ll discuss it,” he said. “If you will, we add an artistic touch to a scientific process.”
Year-end 2009 forecast
STR projects that at the end of 2009, supply will be up 3.0 percent, demand will be down 5.5 percent, occupancy will decline 8.4 percent, average daily rate will drop 9.7 percent, and revenue per available room will be down 17.1 percent.
The RevPAR figure is what likely will surprise many industry observers because STR’s previous revised forecast in April suggested the industry’s RevPAR for 2009 would be down 9.8 percent.
“The reaction’s going to be that STR finally got realistic about the forecast because it is a dramatic change,” Lomanno said. “We don’t like that dramatic of a change, which is one of the reasons we’d like to go about it in a monthly progression.”
Mark V. Lomanno
While a number of factors contributed to the company’s change of heart, Lomanno said the steep discounting that has taken place in the industry is at the top of the list.
“It is disappointing, surprising and a little bit sad,” Lomanno said. “One of the things we felt like was that the industry would hold pricing more than it’s been able to. If you’re looking at the last downturns, a lot of the commentary that we heard from the brands and the revenue managers is that they learned their lessons in 2001-2002 and they would be able to react better the next time around. For whatever reason, maybe because this downturn is so severe and so dramatic and so different than they were expecting what they learned they weren’t able to apply.
“Whatever the reason was or (however) it transpired that way, the decline in pricing is more dramatic than it’s ever been, more than we thought it would be, indeed more than we think it should be,” he added.
The other factors that play into the forecast change are that the normal economic factors haven’t rebounded the way STR anticipated and the many recent openings that have led to the slowing of the pipeline, Lomanno said.
“It’s going to be a little bit better than it has been the last couple of months, but it’s not going to be as good as we had hoped,” Lomanno said.
STR is projecting that the three-month period from June through August will experience a 5.7-percent decline in demand from last year, an 8.4-percent decline in occupancy, a 10.4-percent drop in ADR, and an 18.7-percent decline in RevPAR
“Transient rates have declined much more than group business and summer months are more heavily weighted toward that transient business, so therefore you can expect that rate decline (to be) more dramatic than we had hoped or you’d like to see,” Lomanno said. “The ADR side is still deteriorating and we don’t see that deterioration subsiding until October, November.
“To a large degree, the industry is in a bit of a panic mode,” he said. “People are only as strong as their weakest competitor in this environment, so when people are cutting and running, they feel compelled to join along. We think that’s going to linger.”
STR anticipates the following for 2010:
• supply +1.4 percent
• demand +1.1 percent
• occupancy -0.3 percent
• ADR -3.4 percent
• RevPAR -3.7 percent
“It’s looking to us that over the past couple of months, demand has troughed,” Lomanno said. “When that number stabilizes and you see year-over-year demand comparisons getting to be flat, slightly negative, even slightly positive, then that will stabilize the ADR. That’s certain to happen at some point in 2010, whether the group business comes back or not, which it probably won’t until the second half of 2010.
“I wouldn’t say we’re optimistic about 2010, but it will not look nearly as bad as 2009,” he said.