HENDERSONVILLE, Tennessee—Hotels located near interstate highways serve a multitude of travel occasions and provide guests convenient accommodations at a reasonable price. In the Smith Travel Research database, more than 7,000 U.S. hotels comprising more than 480,000 rooms are classified as “interstate” location type properties. These hotels account for about 10 percent of U.S. hotel room supply and 6 percent of room revenue. Midscale-without-food-and-beverage and economy chain hotels dominate the interstate location category, accounting for more than 55 percent of the group’s room revenue.
From a performance perspective, interstate hotels have experienced trends similar to the overall U.S. lodging industry. Occupancy for the category was relatively weak in 2008, declining 4.6 percent to 55.3 percent. Like the industry, occupancy declines accelerated in the second half of 2008 and have continued through January 2009.
Contrary to the total U.S. industry, interstate hotels have continued to increase average daily room rates through January 2009. In fact, annual interstate hotel average-daily-rate growth has averaged 3.3 percent since STR began tracking hotel industry performance in 1987; it has never experienced an annual decline.
It’s also interesting to note that interstate hotels have only experienced two years of annual revenue-per-available-room declines—1991 and 2008, with both years down 0.3 percent. This can partly be attributed to the fact that interstate hotel ADR is the lowest, in absolute terms, among all the property types tracked by STR. Nonetheless, interstate hotel operators seemingly have a good handle of the basics of revenue management.
Breaking out the interstate category and analyzing performance numbers by the two major hotel chain-scale segments—midscale without F&B and economy—provides interesting perspectives into the category’s performance dynamics. Total interstate hotel room supply increased by 3.1 percent in 2008—faster than the industry’s 2.6 percent growth. However, midscale-without-F&B room supply grew by a whopping 8 percent, while economy hotel supply increased 1.2 percent. In 2008, 234 new-construction hotels with more than 20,000 rooms were opened in the location category, more than 56 percent of which were midscale without F&B. That chain-scale segment apparently has become the first choice development option for many companies.
Midscale-without-F&B properties enjoy significant occupancy and ADR premiums over their economy chain counterparts. In 2008, occupancies averaged 10.5 percentage points higher and room rates averaged more than US$30 more at midscale-without-F&B hotels. Since 2006, the occupancy gap has narrowed while the ADR difference has expanded between the two groups, likely influenced by the large amount of newly constructed midscale-without-F&B properties.
Interstate hotel business mix normally skews toward leisure travelers. Hotel guests at interstate properties tend to make advance reservations less frequently than guests at urban or resort locations, many preferring a “through the windshield” decision. Not surprisingly, the highest occupancy nights at interstate properties are Friday and Saturday. In the 12-month period ending January 2009, interstate hotel RevPAR declined most on Thursday through Saturday nights, suggesting that leisure travel has been impacted most at interstate properties. Over the same time period, Monday through Wednesday RevPAR increased slightly.
While it’s clear that all hotel categories are suffering in the current slowdown, it’s also apparent that interstate hotels have been fairly successful at maintaining and even growing room rate during industry down cycles. That’s a lesson every hotel operator should take to heart.