In this point/counterpoint series, Jan Freitag makes a case for each side of the U.S. hotel recovery debate. Also read, “Con: The sky is falling (why the worst is still to come).”
HENDERSONVILLE, Tennessee—STR data indicates that the hotel sector is in a recovery that should be prolonged and sustainable. Here are a couple of factors and data points that make us feel confident about where we are and where will go from here:
1. Transient demand is back.
Through June 2010, transient room demand increased 8.4%; in June alone hoteliers sold 6.8% more transient rooms than we reported in June of 2009. In other words, through the first half of 2010 some 15.9 million more transient rooms were sold than in the first six months of 2008. Solid transient demand is crucial to a sustained recovery and bodes well for average daily rate growth in 2011.
2. Room rates are improving.
In June 2010, ADR showed positive growth compared to rates in June 2009, finally reversing the negative trend of monthly ADR declines we have reported since October of 2008. In addition, transient ADRs have increased by more than 2% in the past two months.
3. Unemployment rates are not getting worse.
The U.S. Bureau of Labor Statistics reported the unemployment rate in June of 2010 at 9.5%, which is the lowest in the past 11 months. The trajectory of the unemployment rate clearly is on a downward curve and a lower unemployment rate bodes well for increased leisure travel and increased discretionary spending.
4. Corporate profits are up.
According to the Blue Chip Economic Indicator, the consensus forecast of 50 economic forecasters shows a strong increase in corporate profits in 2010, up 22.7%. This is a marked improvement from December 2009 when the consensus forecast for 2010 was a solid, but not yet as strong, 13.1%. Corporate profits are a necessity to give C-level executives the confidence to relax travel policies and to once again encourage face-to-face meetings and conference attendance.
5. Inflation is in check.
For the first half of 2010, the average inflation rate was less than 0.2%. The outlook for an increase in inflation remains muted, also mirrored by the Blue Chip forecast, which estimates the Consumer Price Index growth for the full year 2010 at 1.7%. Low inflation rates bode well for the hotel industry because ADR increases, combined with a low level of expense growth, can fall almost directly to the bottom line.
So, overall, the available data points show that a sustainable recovery is under way. It seems from our data that the worst is behind us and that the lodging industry has every reason to be optimistic about 2010 and beyond.