LONDON—Since 2005, resort properties throughout the United States have been experiencing declines in all three key hotel performance measures, as demand has decreased significantly. In light of the current economic state, this decline has become more severe. Teamed with the large supply increases throughout the resort segment, occupancy and revenue per available room seem to be declining further—though hopefully only for a short time.
As can be seen from STR Global data, resort properties have endured huge declines of occupancy, average daily rate and RevPAR since 2007. The figures began to drop off slowly around 2005, decreasing severely into negative territory around 2008 when economic conditions began to worsen. Unfortunately, many resorts have succumbed to discounting, driving down ADR. With demand at an all-time low, many resort operators believe this is the only option for maintaining occupancy.
Obviously, the economic downturn has had a huge effect on occupancy at resorts in the U.S. Mid-tier and luxury travel volumes have fallen sharply because business and leisure travelers are far less likely to stay at luxury resort properties. A few years ago, the perception of luxury was an advantage for these properties. Now it’s more of a pejorative. Staying at a resort is no longer seen as a well-deserved break or reward—it’s seen more as an indulgence. However, there are factors behind this regression other than the economic crisis.
Beginning around 2005, the purchase of second homes skyrocketed throughout the United States. Sales of second homes increased 16.9 percent in 2005, according to the National Association of Realtors. Of all home sales in 2005, 40 percent were second homes, a 36-percent increase from 2004. While many of these sales were for investment purposes, more than 12 percent were purchased as vacation homes. This purchasing surge impacted the resort industry because a larger number of travelers no longer needed to stay at resorts.
This surge tapered off in 2007; NAR reported a 30-percent decrease in second home purchases in as people were looking more at destination resorts. Due to the boredom of vacationing at the same place, many people sought luxury vacation clubs where they could have a private residence at many different locations. The trend continued in 2008, when second-home sales decreased even further. However, the poor economic conditions emerging at this time decreased vacation travel as a whole, so even with fewer people purchasing second homes, demand for resort travel continued to weaken.
With the economy in crisis, travelers are being much more frugal. Alternate sources of lodging have become popular. Those who still have second homes use them for vacation, but many people opt to stay with friends or relatives when traveling. Additionally, many people are choosing to vacation for shorter periods of time, maybe staying a few days instead of an entire week. Nevertheless, there are a few things resorts can do to try and bolster demand.
While decreasing ADR has a huge effect on perception, as travelers’ expectations decline along with the price, there are other factors to consider. In a declining economy, many properties reduce the number of staff members. However, this can be extremely hazardous to the perception and experience of luxury at a resort. People expect high-level service at a resort, and this can become difficult with a reduced staff. With everyone tightening their purse strings, staying at a resort needs to feel worthwhile, and the experience needs to exceed expectations.
Online sites, such as Trip Advisor, have become extremely popular among travelers. With good reviews, people may feel it’s worth the money to stay at a resort. So, it’s extremely important for resorts to maintain high levels of service to increase occupancy.