Confidence is a key to prosperity in 2017
Confidence is a key to prosperity in 2017
13 DECEMBER 2016 8:35 AM

As we close a year marked by global political, social and economic uncertainty, the hotel industry should benefit from new-found clarity in 2017. Of course, time will tell.

It’s the season when analysts, pundits and bloggers provide their forecasts and predictions for the coming year. And probably no time in the past seven or eight years has the hotel industry been facing more uncertainty than it is as we approach the doorstep to 2017.

The world is in political upheaval, and whether that roiling will ultimately be beneficial or detrimental can only be judged over time. Nobody—business owners, leisure travelers, meeting managers, hoteliers, lenders—likes uncertainty. Clarity is what moves markets, incites families to vacation and prompts business executives to send their people on the road. This year has been one of uncertainty on a global basis, leaving those planning to travel to think twice or more.

But as we approach 2017—and despite the political upheaval in Europe, the United States and elsewhere—I believe people will feel less unsure and thus be more likely to make decisions, and that includes travel. They might have been spooked at what’s happened in the world in 2016, but many will believe (or hope) most of the turmoil is over. It’s human nature to look ahead with optimism.

For those reasons, I believe a general global confidence will begin to set in when the calendar turns the page on 1 January. As a result, forecasts for hotel performance in 2017 might be a little conservative. It could be a surprisingly good year—especially in the U.S., but elsewhere, too.

All three organizations releasing 2017 outlooks for the U.S. hotel market—STR, CBRE Hotel’s Americas Research and PwC—see revenue per available room inching up slightly in the coming year, through a combination of near-record occupancy and muted rate growth (at least compared to what the industry has experienced in the last half-decade.)

STR, the parent company of Hotel News Now, forecasts a 2.3% rise in RevPAR based on a slight dip in occupancy and rate growth of 2.8%. CBRE is a little more bullish, forecasting average daily rate gains of 3.3%, while PwC sees RevPAR rising a more modest 1.7%.

Given recent spikes in the development pipeline, and historically high levels of hotel demand, it might be difficult for many hotel operators to boost occupancy much above current levels. However, even a modest rise in demand beyond what is forecast could give hotels greater pricing power, leading to higher revenue and profits. Several political, social and economic factors could contribute to a decent, if not sparkling 2017 for hotel owners, operators and brand companies.

Settled political climate
This year was one of political headlines in North America and Europe, with changes in leadership in the U.S., the United Kingdom’s bold Brexit decision and various other changes in power. And despite some hand wringing and predictions of doom, the world economies have remained stable and even moved forward.

In the U.S., the perceived business climate under President-elect Donald Trump will be one of fewer regulations and lower taxes—developments that should loosen the business travel purse strings of many companies. And should Trump’s promise of increased job development come to fruition, workers are more likely to plan a trip to Hawaii or a family road trip to see Grandma. Whether this economic optimism is sustainable will at least in part determine the health of the travel sector.

Two sides of rising oil prices
This month’s agreement among OPEC ministers to curtail oil production in the coming year is a double-edged sword for world economies and the travel industry.

Rising oil prices mean increased costs for automobile and plane travel, but consumers seem to be accustomed to yo-yo gas and airline prices so anything short of a severe spike ($5 a gallon for gas, for example) shouldn’t significantly affect travel planning. On the other hand, higher oil prices are a boon to the energy industry and might revive the once-booming, but now-moribund oil markets in the U.S., which would benefit slumping hotel performance in oil-dependent regions such as Texas and the Dakotas.

On the road again
The most recent Travel Trends Index from the U.S. Travel Association was mostly bleak, with news of continuing softness in business travel and international visitation to the U.S. Yet, a bright spot in the report remains leisure travel, which has held mostly steady since the end of the recession. 

And despite the strength of the U.S. dollar and its chilling effect on international arrivals, long-term trends point to the Americas as a preferred destination for global visitors, especially from Asia. A recent report from the U.S. government showed an 18% increase in Chinese travelers to the U.S. in 2015, with visitations projected to nearly double to 5 million by 2021. 

Curse of disintermediation
Despite my optimism, the global hotel industry faces a number of internal and external challenges in the coming year and beyond. Overbuilding is always a concern, as is the unpredictability of world events.

Another issue is the effect intermediaries—online travel agencies, as well as metasearch sites, social media, Google and Airbnb—have had on rate suppression. In another era, the consecutive quarters of record and near-record occupancies achieved by the industry would have given operators unprecedented pricing leverage. However, consumers have a smorgasbord of options for accommodations and rates in a transparent marketplace that gives them—not hoteliers—the upper hand in what rates they’ll pay to spend a night. This will contribute to ongoing RevPAR sluggishness for the foreseeable future.

To some around the world, the political and economic news might seem grim, but the travel industry, above most others, has a knack to endure and prevail in all environments. It’s in the DNA of many people to travel, and little will get in their way.

Email Ed Watkins or find him on Twitter.

The opinions expressed in this blog do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

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