While doing research for some recent presentations, I began looking at the current revenue-per-available-room levels and was struck by how low they actually were in actual dollars. Sometimes at Smith Travel Research we get a little too caught up in looking at the percent change numbers while not spending enough time with the absolute numbers themselves. In doing just that, some very interesting—and alarming numbers—come to light.
To help highlight the reality of RevPAR levels today I created two charts as part of this blog presenting data for all U.S. hotels as well as for each of STR’s chain scale segments. One presents RevPAR change for each segment from each segment’s previous peak. The other chart shows current RevPAR levels along with date of the segment’s RevPAR peak and the date when current RevPAR levels were last seen. In other words, how long ago was it when industry performance was where it is currently?
Now, on the surface, historical RevPAR levels may not seem that significant but when you consider the three components of that critical measure—supply, demand and room rate— it quickly becomes clear how critical this absolute value is. In thinking about RevPAR from a mathematical sense, supply as a component is almost always going to grow while the other two factors, demand and room rate, can either grow or contract, as they both have done for the past 18 months. So in this kind of a cycle, declining RevPAR is the unwanted combination of increasing supply and declines in both demand and room rate. So in order for RevPAR levels to approach historically high levels, the growth in the combination of demand and average room rate is not only going to have to surpass levels of supply growth but do so for both an extended time period as well as by a significant margin.
So the question becomes just how long will it take for the industry and each of the chain scale segments to recover former RevPAR levels? While this is a very difficult question to answer precisely, it is very safe to say it will take more than five years from now for most segments to get back to previous high-water marks.
Using the 2001-2002 downturn as a measuring point, the RevPAR decline then lasted 17 months and then took 32 months to recover for a grand total of just over four years, peak to trough. During the current cycle, the RevPAR decline from peak is at now at 19 months and counting and is significantly more severe. In fact, the industry as a whole now reports RevPAR levels last seen about five years ago, and for the economy segment this key measure is now at levels not seen in 15 years, which is staggering.
In conclusion, it’s going to be quite awhile until we seen RevPAR back at 2008 levels. It’s clear the industry really has its work cut out for it!