REPORT FROM THE U.S.—With 2009 squarely behind us and talk of “less worse” economic indicators, will the hotel industry soon see a recovery?

This question is top of mind with the big three forecasting firms—PKF Hospitality Research, PricewaterhouseCoopers and Smith Travel Research—that are preparing their answers for the Americas Lodging Investment Summit that begins today.

And those answers, as can be expected, are difficult to summarize. For every optimistic statement there is a pessimistic counterpoint. For every hint at demand increase there is an equal but opposite factor that could lead to continued strife. With that said, here is the picture of recovery as depicted by the men who spend the most time sketching its form.

Luxury will lead

“(It) is going to be a top-down recovery, and weekday travel will recover first,” said Mark Lomanno, president of STR. “The high- end business travelers will drive the shape of recovery almost certainly. If you look at the performance of the segment over last couple of months, there has been substantial recovery at the high end.”

“The majority of trends that are playing out are similar to trends in past downturns,” said Mark Woodworth, president, PKF Hospitality Research. “Luxury is the first to bounce back. The chain-scale behavior and where they’re going to be is very consistent with past recessions, but universally it’s not who’s first back or last, it’s everything in between—the pace and scale.”

Mark Lomanno, Smith Travel Research

“The most misunderstood performance of a segment is luxury—it had the best demand performance in 2009,” according to Lomanno. “… The AIG effect was more myth than reality we’re beginning to think; from group standpoint it was. If it existed at all it went away in a real hurry.”

In December, occupancy in the luxury segment increased 5.0 percent to 54.6 percent.
PWC’s third-quarter 2009 forecast, its most recent, indicates an expectation that the luxury segment will see the largest RevPAR declines of any chain-scale segment in 2009 and 2010. End-of-year 2009 figures indicate that luxury was the worst performing segment based on RevPAR with a 23.6-percent drop in 2009, but for December it had the best growth rate at -5.7 percent, according to STR data.

Demand expectations

The forecasters expects demand to pick up in 2010.

PWC’s analysis indicates demand growth inflection for luxury and upper upscale occurred in third-quarter 2009.

“I certainly stand by the theory that demand will be stronger in first-quarter 2010,” said Scott D. Berman, the firm’s principal and U.S. industry leader, hospitality & leisure. “The uptick may be somewhat delayed, we may not see it in the first quarter, but we’re confident based on the economic forecasting that demand will see an uptick in room nights. That being said, all the pressure is on pricing.”

However, the important sector of corporate transient business looks to be slow.

Mark Woodworth, PKF Hospitality Research

“It would be hard to imagine that anybody involved with the domestic lodging industry wouldn’t be feeling more optimistic today than a few months ago,” Woodworth said. “We’re finally seeing demand flattening, and we think soon it’s going to be growing again. I don’t know anybody that thinks we’ll stay at the bottom. We’ll a see positive uptick.”

While STR believes its demand forecast is in line with other forecasts, its supply numbers are higher, Lomanno said. This causes the forecasted occupancy change flat this year.

"We think there is no confidence in rate recovery in 2010," he said.

Pricing recovery

A rate recovery could be the last to turn.

“It will not be nearly as bad as 2009 … but the bad habits the industry developed from a pricing standpoint will linger,” Lomanno said.