HENDERSONVILLE, Tennessee—Regardless of the economic cycle, it’s common for hotel operators to wonder if their competitors are performing at the same level as they are. As the industry reels from a global economic downturn, not all segments are sharing the pain equally. Of the seven chain-scale segments that STR tracks, the economy segment is faring comparatively better.
Comprising nearly 10,000 hotels with about 758,843 rooms, the segment, which is made up of chains such as America’s Best Value Inn, Days Inn, Extended Stay America and Value Place, hasn’t always shown such relative resiliency. Looking at the chain scale’s supply percent change and demand percent change after 2001, it had 31 months of declining demand percent change—from October 2001 until April 2004—before it finally saw a month of positive growth.
There was also a corresponding decline in ADR percent change during that time, which was a time when hoteliers learned the danger of dropping rate. They learned that it’s important to maintain price integrity so that when the economy rebounds, you’re able to recover more quickly. In the midst of our current downturn, it appears the economy segment has learned its lesson—the chain scale has yet to have a decline in ADR percent change.
Despite such discipline, the economy segment has not been immune from the declines in occupancy, average daily rate and revenue per available room that have plagued the industry. During January, occupancy for the segment was down 6.5 percent, ADR was down 1.9 percent and RevPAR was down 8.3 percent. But as painful as these drops may be, they’re still not as severe as those experienced at the upper-end of the chain scale.
During January 2009, the largest decline in occupancy was from the luxury chain scale (-17.1 percent) followed closely by upper upscale (-13.8 percent) and upscale (-13.2 percent). The luxury segment also had the largest decline in ADR (-7.6 percent) and in RevPAR (-23.3 percent). Cancelled meetings and events are contributing to these ills, as the lost revenue will mainly affect the luxury, upper upscale and upscale chain scales.
Looking at performance through the lens of the 12-month moving average, there are a few positives to point out for the economy segment. One is the slowing supply growth. As of February 2009, there were 274 hotel projects in STR’s active pipeline for the economy segment—5.1 percent higher than last year, and much more reasonable when compared to the 21.4-percent increase in the upscale segment and a 37.3-percent increase in the midscale without food & beverage segment.
It’s also great to see the positive ADR growth of 0.8 percent. Since no one knows exactly how long this downturn will last, hopefully the economy segment will continue holding its rates. It, along with everyone else, will be better off in the long run.