HENDERSONVILLE, Tennessee—As we close the summer travel season and move into the fourth quarter, there are pressing questions that will be answered in the coming months. The declines in revenue per available room we’ve experienced throughout the past year started in August 2008, but those losses begin to pick up steam in the fourth quarter (particularly November). As we come to conference season again, our outlook for 2010 and 2011 will depend heavily on the performance data we see during the next two months.
Thus, Smith Travel Research is holding our forecast steady and waiting for preliminary data for October before revisiting our 2010 outlook. Depending on the initial indications of performance during the conference season, we’ll revise our 2010 outlook if necessary. As of now, we stand at a RevPAR projection of -4.2 percent in 2010. While we do have a bias to improve our RevPAR target for 2010, our wait-and-see approach will provide us with more discernable data, especially in the average-daily-rate portion of the equation.
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Last month, this column highlighted the Hotel Industry Pulse (HIP) index and its growth in July and August. We suspected growth was because of the improvement in leisure travel, and that seems to be the case. In September, HIP declined, breaking the short trend that emerged. While our models tell us we hit the bottom of the industry performance cycle earlier this year, the road to recovery will prove to be slow, and for lack of a better term, bumpy.
Also referenced last month, the impact of the unemployment rate on lodging performance is becoming more troublesome to predict, especially looking at the second half of 2010 and 2011. With unemployment currently at 9.8 percent, many analysts believe that number would be in the mid-teens if you count those working part time who would rather be working full time and those that have given up searching for work. This becomes more important as we look to where the demand stabilization has originated in the middle of 2009.
As the chart above shows, demand in the weekend segment (which we use as a gauge for leisure travel) has stabilized, while demand in the weekday segment has yet to hit a definitive bottom. If the unemployment rate remains close to 10 percent throughout 2010, sustained demand growth in the leisure segment will be difficult. The corporate travel segment will then be the barometer for recovery, and as of August, there have been no discernable trends in our monthly data to indicate a turning point.
About the STR monthly forecast:
The forecast is developed in conjunction with data partner e-forecasting.com using standard economic variables such as employment, personal disposable income, the consumer price index, gross domestic product and corporate revenues, while also incorporating STR lodging data and proprietary economic indicators. Results produced by the model are then reviewed by STR, and a human element is added to the forecast.