This year’s Hotel Data Conference, held in the vast expanses of the Gaylord Opyland Resort and Conference Center near our hometown of Hendersonville, Tennessee, was an opportunity for us to show off our wares, present new products and, most importantly, “talk data” with fellow data heads from revenue management, marketing and management.
It was a weird omen for the conference that as I took the stage to deliver the opening presentation, the Dow Jones Industrial Index had already lost 100 points and was falling further. I think it was a poignant reminder that the uncertainty in global markets we observe on a macro scale is often played out in a micro cosmos in our own industry.
Demand numbers are up; in fact the hotel industry is now selling more rooms than it ever (!) had (when looking at the data on an annualized, nominal basis). At the same time, room rate growth for this year so far has been sluggish, and in some areas non-existent. And at the lower end of the market, the annualized numbers suggest hotels are even further discounting already depressed rates.
As STR speakers at conferences, we vehemently suggest the hotel industry needs to provide value for the prices charged. And that the industry, in order to be viable in the long run, needs to provide profits and investment returns above its cost of capital (the airline industry example non-withstanding). That said, we at STR (the parent company of HotelNewsNow.com) are often characterized as the lone caller in the desert who argues for rate increases given the sound underlying fundamentals. And, indeed, a consistent tenor of our message has been that sound economic judgment of all market participants would dictate a depressed supply and strong demand environment should lead to pricing power.
(When I make this argument and lawyers are present, the discussion inevitably turns to the thought that STR is facilitating “price fixing.” But because we are not actually setting rates and because—more importantly – history suggests no one is actually listening to us anyway, I think this is really a moot point.)
Heaven can wait
The way the data has played out so far made us realize our demand forecasts were actually a bit too timid, but also that the average daily rate growth we expected for 2011 and 2012 were too aggressive. In 2009, Jim Burba coined the term “Back in heaven in 2011.” It turns out heaven can wait. Our most forceful forecast revision came for ADR growth of 2012. We adjusted the 6% growth rate down to 4.9% industry wide. And even that growth is dependent on a continued positive demand growth from the leisure and business traveler and, even more importantly, from rate increases of the group traveler.
I will be attending the Global Business Travel Association meeting in Denver in two weeks, and it will be very interesting to note the sentiment on the show room floor when talking to room buyers. I am curious to see how the room rate negotiations are progressing with regards to next year and how much pushback hoteliers are expecting and experiencing when negotiating for 2012. As demand numbers remain positive, room rate growth is paramount to ensure profitability, otherwise there really might only be one word to characterize the 2012 ADR growth: “Yikes!”
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