HENDERSONVILLE, Tennessee—A remarkable recent trend in the U.S. hotel industry has been the strong demand growth rates that were sustained from mid-2009 through 2011, resulting in record levels of roomnights sold for the U.S. The story deepens, however, when examining the major components of demand: transient and group demand.
Looking at Chart 1, which covers seasonally adjusted demand over the last six years for all upper-tier U.S. hotels, an interesting relationship emerges among the three time series. At the start of this upward trend in overall demand, group demand was slipping, falling 2.6% from March 2009 to September 2009 while overall demand grew 5.2% on a seasonally adjusted basis. The growth in demand during this time was derived from the transient sector, which increased 10.6% during the same timeframe. Transient demand growth continues to be responsible for overall demand growth.
A note on seasonally adjusting data: Seasonally adjusted data is calculated using a few simple steps to remove reoccurring seasonal patterns from a time series to better show the underlying trend line. A 12-month moving average is computed and then centered to the middle of the yearly cycle. These averages are then used to calculate a “seasonal factor” for each month, which are then applied to the original time series.
In the time period covered by Chart 1, where transient demand increased 18.4% from start to endpoint, group demand dropped 6.4%. It is difficult to reach a conclusion as to where the overall industry demand has seen a prominent resurgence by observing the group numbers, alone. The compound annual growth rate from 2006 onward for group demand is -1.1%, directionally opposite the total industry’s demand CAGR of 1.1%. The transient demand CAGR is a healthy 2.8%. Analyzing only this latest period of demand growth from March 2009 onward, the group demand CAGR is 3.6%. This figure is less than half of the transient CAGR of 7.5%.
The downturn in demand in late 2008 marked a noticeable change in the relationship between transient and group demand. Before this slowdown, the two measures mirrored each other, bouncing around their respective levels of 13 and 9 million. From this recent trend, it can be inferred that leisure travel has recovered better than business travel in terms of demand.
Chart 2 shows the seasonally adjusted room rates for the same segments. The decline in group rates lagged behind the collapse in overall rates in late 2008. Where total rates bottomed out in early 2009, group rates continued to decline throughout the year, finally reaching the lowest point in January 2010.
From where total rates began to stabilize in May 2009, the transient ADR CAGR has been 3.3% through January 2012. This is strong compared to the 0.4% decrease in growth rate of group rates. However, this does not take into account the lagged decreases in group rates. From 2010, the group rate CAGR is a healthier 2.5%. Yet, this group demand growth still trails the 4.2% mark for transient ADR. Both group and transient rates reached a plateau in the last half of 2011.
Increases in room demand and rates, and consequently revenue per available room, stemmed from solid growth in leisure travel. Group demand and rates have been largely stagnant to the point where one could say that these upward trends in the total metrics are in spite of the group numbers. In the coming months, it will be interesting to see if the group numbers lag behind the totals on the way up, just as they did on the way down. We could be in store for sustained group rate growth behind these significant transient gains. Hopefully, both of these segments can break the recent trend of wavering rates and see some increases in 2012.