Transient demand has led the recovery during 2013, but recent data suggests group demand will come on strong as the year unfolds.
REPORT FROM THE U.S.—Up to this point, transient demand has led the hotel industry’s recovery. However, based on new data, many companies now are forecasting strong growth in group demand.
The positive outlook comes after months of yo-yoing performance metrics that began in the build up to the U.S. presidential election last November. After a slowdown in group data, the segment’s pace increased in December and January, only to fall off again in February, March, April and May.
“I would say that lack of group growth (in the first half of 2013) caught people by surprise a bit,” said Tim Hart, executive VP of business intelligence for TravelClick. “It begs the question of why—why is group growth lagging behind other segments?”
Compared to the previous industry peak in 2007, transient rooms sold in the first five months of 2013 increased by a whopping 24%. Group demand for this period was down roughly 3%, however, according to Jan Freitag, senior VP of strategic development at STR, parent company of Hotel News Now.
“What this means is the current recovery is transient-driven, and group rooms have not yet recovered,” Freitag said.
However, group average daily rate for the first six months of 2013 was up 3.8% when compared to the same time frame in 2007, while transient ADR was up 0.2%.
“On the group side, we’re seeing that room rates are recovering, basically, back to where they used to be—they’re up a little bit—but the demand, the volume isn’t there,” Freitag said. “And that points to a big question that a lot of people have in the industry, namely: Where are groups?”
Dolce Hotels and Resorts, an upper-upscale brand that caters heavily to group business travel, experienced increases across the board in North America. Group bookings were up 8% year-to-date, following 6% growth in 2012, according to Barry Goldstein, chief revenue officer at Dolce.
From 2012 to 2013, Dolce’s corporate centers/conference centers saw a year-over-year growth of 7% to 8%, while its hotels and resorts saw growth of 2% to 3%. ADR, which finished at $161 in 2012, rose to approximately $165 for 2013.
While these numbers look positive, Goldstein maintains a realistic outlook in terms of group growth.
“The missing link for group is really still the minimalistic view of hiring by Fortune and Global 500 companies. Many have benefited from this time by learning to be able to do more for less, with less people,” Goldstein said. “We’re not seeing the level of hiring, and hiring has an enormous ripple effect for increasing that group demand. And I think we’re going to see, for quite a while, very cautious hiring practices by companies.”
Group moving forward
New data from the June 2013 TravelClick North American Hospitality Review, which addresses the 12-months period between June 2013 and May 2014, paints an optimistic picture for the future. Regarding all travel segments, “The outlook based on current booking activity, it’s positive,” Hart said. “In all cases, demand is ahead of the same time last year, so all of them are up.”
As compared to this time last year, overall committed occupancy has increased by 2.3% and ADR has increased by 3.4%, according to TravelClick. Although transient growth still leads (up 4.1% in both bookings and ADR) the outlook for future group growth is stronger than it has been in recent months (up 1.6% in committed occupancy and 1.8% in ADR).
“Group is up. It has been the one that we have cast a watchful eye on, because its pace has not been good in a relative sense,” Hart said. “We can basically say group rates are trending based on what we’re seeing in the near future of group demand and what has recently passed. What we’re seeing in terms of business on books—if we were to take 2013 out of it and just focus on early 2014, the group pace would look stronger.”
Joe Bates, VP of research for the Global Business Travel Association, also shared a positive outlook for the remainder of 2013 and 2014.
“This year we see the U.S. economy recovering, and so we anticipate group spend will increase by 5.3%, and next year we think that will even be better growth still, at 6.8%,” he said. “And both of those figures for 2013 and 2014 are better than the transient spend that we’re forecasting (3.8% and 5.2%, respectively).”
Bates said group spend tends to increase faster than transient spend in the presence of a healthy economy.
“We really see group spend coming back much stronger now with the U.S. economy getting its feet under it,” he said.