HENDERSONVILLE, Tennessee—Slightly more than 2,000 U.S. properties representing nearly 290,000 rooms are classified as airport hotels in the STR database. Airport properties typically are located three to five miles from one of the top 50 U.S. airports. Upper-upscale (e.g. Marriott, Hilton, Sheraton) and upscale (e.g. Hyatt Place, Crowne Plaza, Hilton Garden Inn) hotels account for nearly 60 percent of room revenue generated at airport hotels. Chain-affiliated properties dominate the airport category, capturing more than 90 percent of the room revenue and underscoring the importance of brand affiliation in this space.
Similar to the total U.S. industry, the rate of room supply growth at airport hotels has increased steadily during the past three years, reaching 2.4 percent growth based on October year-to-date data. Demand (room nights sold) fell 1.3 percent over the same time period, resulting in an occupancy decline of 3.5 percent. October YTD room rate at airport locations was up 3.1 percent and revenue per available room declined 0.6 percent; again, very similar to the total U.S. lodging industry performance.
The dominance of upper-upscale hotels in airport markets (they account for about 35 percent of the category’s room revenue) reflects customer need during this travel occasion. Airport property hotels typically skew more toward a business- traveler mix and provide business services, meeting and conference facilities and a full-service food-and-beverage offering. Most offer 24-hour F&B availability. Airport hotels’ business mix is reflected in the peak RevPAR days of Tuesday, Wednesday and Thursday--typically the heaviest business travel days. Based on October YTD data at upper-upscale airport hotels, transient guests accounted for about 59 percent of roomnights sold and slightly more than 63 percent of room revenue, while group travelers made up about 30 percent of roomnights sold and room revenue. Contract business, primarily airline crews, makes up the balance of airport hotels’ business.
RevPAR slump
Primarily due to occupancy declines, RevPAR at airport hotels has decreased in six of the past 10 months, with the biggest declines coming in August and October. Preliminary November data indicate the trend will continue, with November’s decline likely the steepest yet in 2008. Based on the current economic and lodging industry outlook, we expect flat to declining RevPAR for airport hotels in December 2008 and into 2009.
Many airlines have announced flight reductions, which could affect selected airport hotels. The more important issue for airport properties, in our view, is the overall health of the economy and corporate travel. Flight reductions will, no doubt, negatively impact some airport properties. But fewer flights could result in higher load factors – basically delivering the same number of people (albeit with fewer flight options) to a given destination. A stalled economy will slow all types of travel, particularly corporate travel, which is the lifeblood of most airport hotels.
Airport hotels provide a vital service to the traveling public, helping bring businesses and clients together in an efficient, cost-effective manner and offering leisure travelers a convenient option for selected travel needs. As with the overall hotel industry, the near-term operating environment for airport hotels will be challenging. Operators must consistently deliver the basics – outstanding service and product – along with value-added offerings to capture more business and weather the storm. Those meeting the challenge of the slower economy will reap the benefits as the industry moves toward recovery.
