WASHINGTON, D.C.—Recovery was the topic at hand, and pricing was the biggest concern.
 
Travel industry experts who were gathered at IHG’s Americas Investors & Leadership Conference last week provided a sober look at the factors affecting recovery for the hotel industry.

“There is no question that the worst is behind us; where we were a year ago in terms of financial stress, we’re through it,” said Adam Sacks, managing director of Tourism Economics, a division of Oxford Economics. “… But there’s been a lot of damage done. The recovery that we are in the midst of is a fragile one.”

 Mark Lomanno, president of Smith Travel Research, agreed.

“It’s not going to get any worse, but ‘improving’ is a stretch,” he said.  “Demand is kind of trending back upward but it’s still negative to prior periods.”  And through the third quarter, total U.S. ADR is down 9.1 percent (US$98.01).

Consumer confidence and travel intentions remain soft, according to Suzanne Cook, senior VP of research at the U.S. Travel Association.

“However, the desire to travel is there,” she said. “We will see leisure pick up—it’s down 2-3 percent this year, although spending is down more. There are great problems in business travel and international inbound to the U.S. That is really lagging, and we have a long way to make up.”

The motivation to take leisure trips is static, and the change comes in the kinds of products, services and destinations travelers are choosing—low-cost museums and national parks are doing better, Cook said.

While there is less access to credit, there has been an “overhyped change in consumer patterns,” Sacks said.

“It is portrayed that the consumer is so indebted and now the party is over, but the data don’t support that,” he said. “Debt hasn’t increased very much at all and the savings rate is about 5 percent. If you look around the world it’s by no means high, and historical U.S. it’s not high either. It’s just higher than two years ago when it was zero.”

Confidence has been damaged, but there should be no extended change in consumer behavior, according to Sacks.

Value-minded consumers

The customer wants to make sure they’re getting a great value, said Bob Alter, chairman of Sunstone Hotel Investors.

“They are picking properties in the best condition priced at the right price at the right time,” he said. “Pricing and the timing of pricing is more critical in terms of holding and growing share.”

But revenue managers beware.

Mark Lomanno, Smith Travel Research

If you feel you have to match your competitors, make sure you’re reacting to the right properties, he added. “Just because they’re in your comp set doesn’t mean that you should react. Comp set is usually based on geography, not your price set.”

Demand levels didn’t warrant the price declines, and that is a big problem that has to be fixed, Lomanno noted.

“The data would indicate that despite the fact (consumers) want value, there’s a not huge rush for guests to find the absolute lowest price,” he said. “There’s a rush to see the lowest price in the category that you find acceptable.”

Unemployment

With many people searching for guidance during the downturn, forecasts have become an important tool. Many forecasts take the unemployment figures into consideration.

“The relationship of unemployment to the hotel industry is like most industries, but until that number comes back, it really affects the meeting aspect of the business,” Lomanno said.  “Employment involves training, travel and meetings. The transient leisure market will come back faster because it always does. Those meetings—and the training—are a problem.”

Looking at unemployment and consumer confidence together, they tend to move inversely, Sacks said. But consumer confidence can be a leading indicator.

“You will see a rebound in consumer confidence before unemployment makes considerable gains,” he said.

RevPAR relationships

Historically there has been a correlation between revenue-per-available -room growth and GDP growth, Alter said.

“Unemployment is less important than whether GDP grows, and we haven’t seen RevPAR growth yet, but it’s not far away.”

The real relationship is GDP and demand, according to Lomanno.

“It’s not necessarily a tight correlation, but movement in the relationship is strong,” he said. “If demand is positive then there is stabilization in rates. When demand growth is above 2 percent then there is rate confidence.”

Editor’s note: Refer to the Data Bank at the bottom of our home page for up-to-date economic measurements commonly used to track hotel industry health.