US hotels cresting on a wave
 
US hotels cresting on a wave
13 AUGUST 2014 9:00 PM
The remarkable journey of the U.S. hotel industry has come full circle and is enjoying record performance in many key metrics.
NASHVILLE, Tennessee—The United States’ hotel industry is sitting pretty in the midpoint of the industry’s cycle; group business is beginning to grow; and any meaningful supply growth will not occur for probably another 24 months.
 
Those three key takeaways brought smiles to the packed opening session at the 6th annual Hotel Data Conference, hosted by STR and Hotel News Now.
 
“Historically, we’ve seen room demand and gross domestic product tending to move in the same direction, but while GDP has wobbled in 2014, dropping 2.1% in the first quarter but rising 4% in the second, room growth in 2014 has ignored that,” said Adam Sacks, founder and president of Tourism Economics.
 
Presenting an overview of the current U.S. economic situation, and also what the future might bring, Sacks said that in relation to employment rates, room demand growth also was on a tear.
 
“With 3.6 rooms booked per capita in the U.S., Americans have gained a new love for staying in hotels. Hotels and motels have emerged as the No. 1 purchase, much more than cars—that great American love,” Sacks said.
 
Sacks posed two questions: Why did 20014 see extraordinary growth, and will that growth subside in 2015?
 
“In Spring 2013, we forecast revenue per available rooms at 5.8%, while it actually came in at 5.4%, which is reasonable forecasting in our world. Also, historically, there’s an economic parallel between RevPAR and GDP, and if occupancy remains elevated, there is every opportunity to raise average daily rates. Household wealth has surpassed pre-recession levels, and this additional money is obviously being spent in hotels,” Sacks added.
 
Vail Brown, VP of global business development and marketing at STR, agreed, stating year-to-date June 2014 the U.S. hotel industry saw more room stock and sold rooms, which resulted in the highest rooms revenue, $126 billion, since STR started compiling data.
 
Brown is worried that supply is creeping up, although the worry isn’t dramatic.
 
“Supply is at 0.7%, while the 20-year average is 1.7%. Keep in mind, though, that we still sell 167 million more rooms than we did in 2007, and we are demolishing far fewer rooms than ever, only 18,178 rooms in 2013. One question to ask is are we under-demolished?” she said.
 
Sacks underlined some other factors bolstering the current feel-good factor (with some warnings sprinkled in):
 
  • Government is no longer a drag or factor.
  • Midscale and economy sectors have shot up and dramatically improved the landscape, although luxury has contributed almost nothing.
  • Demand is peaking above GDP, and while it will increase in demand, it will not do so as much as it did in 2014 and thus eventually find its way to the historical, longer-term average.
  • International demand has been part of the solution, but potential problems still include possible eurozone and Middle East/Russian crises.
 
“Services and manufacturing are improving; investment indicators show business travel will increase; and wages in real terms are growing. I am not the guy who thinks everything is going to end,” Sacks said.
 
China and groups
Two new segments set to have a decided influence on the U.S. market are groups and Chinese travelers. Brown said that of the current 58 million outbound Chinese travelers, the U.S. caught 3% of them, which represented huge opportunity.
 
Group business also is on the rise, with year-to-date June 2014 seeing 1.5 million more group rooms sold, a 10% increase, according to Brown, who added that transient demand continued to grow share of occupancy and demand for big-box convention properties continued to wane.
 
“In 2008, 12 new properties with more than 50,000 square feet of meeting rooms were built. In 2012, none were built, while in the year to date there has been only one,” Brown said.
 
Millennials and government
Guy Langford, VP of travel, hospitality and leisure at Deloitte, who recently completed a survey of 3,001 millennial travelers booking 26 roomnights or more a year, said this segment is becoming more important in the workforce and in regard to loyalty.
 
“Millennials, who will comprise 50% of the workforce in the next 10 years, expect a lot more initiatives, which in turn could help drive loyalty. For them it is not just about price but about the rewards,” Langford said.
 
Hoteliers will see continued noise across loyalty schemes, he said. He has seen the redemption of loyalty points fall in recent years even though they are still being amassed.
 
Reasons for this include:
 
  • guests increasingly are playing the field;
  • customer choice will continue to flourish through greater flexibility and booking options;
  • online travel agencies and third parties will continue to hinder brand loyalty, and some OTAs have or will have their own loyalty schemes; and
  • the sharing economy is fundamentally changing how customers think about travel.
 
“Focus on fostering your fanatics. Find out what they want, form a customized guest experience. Fine tune your offering and feed the virtuous data cycle as the process of consumption and travel preferences will continue to constantly change,” said Langford, who added that millennial culture would exert an incredible influence on all travelers and hotel guests.
 
Jill Denning, per diem program manager, U.S. General Services Administration, spoke of that other group hoteliers sorely wish to see bounce back: government employees on per diem rates.
 
Denning said government travel spend has increased by $1 million from 2013 to 2014, although the recent high was $17 billion in 2010.
 
“There are fewer trips being taken by government employees, but there’s also a focus on better travel management. We now ask, ‘Is that trip really necessary?’” Denning said.
 
The latest government executive order to reduce travel spend expires 30 September 2016, she added. 
 

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