BOULDER, Colorado—Despite a stunning demand rebound this year, hotels have yet to return to the pre-recession peaks in average daily rate.
Persisting cost-conscious behaviors from consumers could be to blame for these struggles. But judging by trends in the airline and rental car industries, travelers are not as price sensitive as we might have thought.
Airfares are at an all-time high, and rental car revenue has climbed steadily. Even gas prices are on the rise. The American traveler proves to be resilient.
The graph below shows the 12-month moving average through September 2012. We can clearly see where ADR peaked in September 2008 at $107.71. We are still a couple dollars away from that mark, with the September 2012 value at $105.10. This highlights what we already know—discounting hurts hotel rates. The decision to discount hotel rates hurts in the long run, extending the length of recovery.
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And yet Americans are traveling and feeling good about their travel options. The July reading of the U.S. Travel Association’s Travel Sentiment Index, which tracks six travel-related factors, was the highest July level observed since 2007. Two of the factors, “affordability of travel” and “personal finances available for travel,” have substantially increased.
Airfare and car rental revenue on the rise
Not only are travelers flying but they also are willing to pay for plane tickets. Airline passenger load follows a cyclical pattern, peaking during the third quarter each year. According to data from the Bureau of Transportation Statistics, the total number of passengers peaked in the third quarter of 2007 with close to 203 million passengers. The 2011 third quarter total passenger load is just 4% below the 2007 peak.
Overall, airline demand has remained steady in this cyclical manner. Domestic airfares have shown consistent increases; excluding the 13% decrease in fares from third quarter 2008 to first quarter 2009, there has been a steady 1.5% average fare increase each quarter. This year, first-quarter average fares were the highest they have been during the past eight years. Furthermore, ancillary revenue (revenue from non-ticket sources) is $6.8 billion thus far during 2012—a 51% increase since the introduction of airline fees in 2008, according to data from Airlines for America.
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Car rental revenues reached an all-time high in 2011 of $22.4 billion, the highest of the past 11 years and an 8.8% increase over 2010. With almost 1.8 million rental cars in service, the monthly revenue per car for 2011 was $1,060*, according to Auto Rental News, a news site that serves the auto rental industry.
The above data underscores the notion that Americans are not as price sensitive as we might otherwise think. They are paying increasing airfares—even with the addition of ancillary fees—and renting cars. Now, we just need hotel rates to catch on to the trend.
Correction, 5 November 2012: An earlier version of the story did not attribute these figures to Auto Rental News.