The view from the top of the mountain
 
The view from the top of the mountain
22 OCTOBER 2015 5:52 AM
We might have reached the apex of the economic cycle. If that’s indeed true, it’s time to make the best of a great situation.
This isn’t a doom-and-gloom message. On the contrary, everyone in the hotel industry, especially in the United States, should be jumping for joy as we reach the peak of the economic cycle. And while we might be able to see the other side of the mountain, it doesn’t mean we’re falling down the slope any time soon.
 
The data from STR (the parent company of Hotel News Now) and other sources has shown the staggering levels of performance by the industry. Despite a hiccup in August, which was mostly influenced by a shift in the Labor Day holiday, the U.S. hotel industry has recorded more than five years of monthly growth in revenue per available room. July was the 65th month in a row of RevPAR increases, and the 75.3% average occupancy for the month was the highest for any month since accurate records have been kept.
 
However, the number that really caught my attention and made me realize it might not ever get any better than it is right now is 87%. That was the industry’s average occupancy on 18 July, a record for a single day. On that day, the industry also recorded its highest number of occupied rooms ever—4.35 million. These are two records that might never be broken, at least in the near term.
 
Las Vegas is a consistent bellwether for the hotel industry, especially in the group and leisure sectors of the business. Like the hotel industry as a whole, business in Sin City has flattened out in recent months, but at a level any operator in other resort markets would envy. According to the Las Vegas Convention and Visitors Bureau, year to date through August, the city has seen a 2% increase in visitor volume, but nearly flat levels of occupancy (-0.1%), average daily rate (+1%) and RevPAR (+1%).
 
That doesn’t sound impressive until you look closer at the numbers, especially at the occupancy metric. Year to date through August, citywide occupancy was 88.2%, with properties on the Strip at 89.9%. On the weekends, citywide occupancy is an unbelievable 94%. How would you like to revenue-manage those properties?
 
The story is the same for ski-oriented resorts in the western U.S. According to DestiMetrics, business for hotels at 19 mountain destination resorts broke records for the third straight summer. Actual occupancy and on-the-books reservations for the May-to-October period are at 103% of last year’s bookings and revenues are up 11%. Advance bookings for the important winter ski season are up 4% over last year, with projected revenues up 9.4%. 

Even asset managers, those hard-boiled owners’ representatives who sometimes see the glass as half-full, are bullish. In a recent survey, members of the Hospitality Asset Managers Association were “overwhelmingly upbeat” about the state of the industry.

Of course, it’s important to temper all this exuberance with some reality. Being at the top of the mountain implies a trip down the other side at some point. While I don’t see that happening in the near future (that includes 2016 and into ’17), there are issues hotel owners and operators need to address, both from a macro industry level and from a street-corner perspective:
 
A pivot to rate building. Since the end of the recession, operators have been charged with building occupancy for their properties. And, with the help of an improving economy and favorable supply/demand dynamics, they’ve been able to do it. (See the 87% occupancy mention a couple of paragraphs up from here.) Now the task is for hoteliers to pivot their mindsets, strategies and tactics to building rate. It’s the time to be as aggressive as possible in your revenue management. This opportunity might be one in a generation or two.
 
Supply is on the way back. Supply growth in the hotel industry has been below 1% for a number of years, but that has started to change. According to STR data, during August more than 130,000 hotel rooms were under construction in the U.S., up 21.6% over the same month in 2014.  More than 300,000 new rooms are in the final planning or planning stages, and at some point, those hotels will be opening up across the street or around the corner from you.
 
Government inaction. Once again, there is a threat the U.S. Congress will fail to take action on the nation’s debt ceiling and we could face another government shutdown, perhaps as early as mid-December. It probably wouldn’t last long, but it could have serious effects on some hotels and the psyche of the nation’s economy.
 
Also looming is the possibility that Congress might not renew the EB-5 financing scheme that provides visas for foreign investors in the U.S., thus shutting off a growing source of capital for hotel developers. And finally, the do-nothing Congress has yet to figure out a solution to the ongoing problem of how to fix the country’s deteriorating infrastructure. It will be difficult for guests to get to your hotels if the bridges collapse and the roads crumble.
 
Email Ed Watkins or find him on Twitter.

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