U.S. hotel RevPAR stayed afloat in August with ADR growth acting as a small life preserver as occupancy change was mostly flat.
HENDERSONVILLE, Tennessee—Eddie Cochran released “Summertime Blues” in 1958, and 60 years later hotel revenue managers still hum that tune.
I'm gonna raise a fuss, I'm gonna raise a holler
About a-workin' all summer just to try to earn a dollar
Sometimes I wonder what I'm a-gonna do
But there ain't no cure for the summertime blues
1. RevPAR streak continues
August average daily rate moved up 0.9% from last year, which drove all revenue per available room gains, since there was zero change in occupancy. Technically occupancy was down -0.016%, but let’s not be sticklers. So, positive ADR growth led to positive RevPAR growth and happy analysts.
That means the RevPAR upcycle hit 112 months, the longest run ever. It is fitting that the number that got us over the line was pretty close to zero, since basically that is what it is going to be going forward.
This is the fifth month with sub-1% ADR growth. Those of you keeping score at home are wondering, “Wait, didn’t he say that last month?” The answer is yes, I did, but we revised June ADR growth up from 0.9% to 1% so the streak still stands at five.
The calendar was clean-ish. We traded a fifth Wednesday in 2018 for a fifth Saturday in 2019. Traditionally Saturdays are the strongest occupancy nights so that may have helped a little, but I would call that day shift a wash since Wednesdays are obviously the strongest business travel nights.
2. Daily data deep dive
A quick look at the daily and weekly data since June 1 shows RevPAR growth overall has really been decelerating and basically now hovers around 0%.
I also looked at the data for two days specifically: Wednesday as a proxy for business travel and Saturday as a proxy for leisure travel (that’s not 100% true, but you get the idea). I used a 12-week average to make the data less, how do they say in stats, “squiggly,” and the trends more legible.
What is certainly concerning here is the ongoing slowing (and most recently decline) of RevPAR growth for Saturdays. Consumer spending makes up roughly 68% of the U.S. economy, and how people feel impacts how they spend.
A slowing on the Saturday RevPAR can point at two things:
- certainly no change in occupancy since supply and demand growth are in equilibrium pointing at more consumers traveling, but
- likely a lack of pricing and maybe even ADR declines.
Now, you could spins this as a positive and suggest that the lack of ADR increases lifts demand and occupancy as more people are traveling, but that is a very kind reading of the data. The other way to look at this is that hoteliers are scared the new competition is eating their lunch, and they pre-emptively open up lower ADR distribution channels to build a base of occupancy. Consumers are traveling, no matter what, and hoteliers are just leaving money on the table because demand would have been there anyway.
3. Segmentation data
Segmentation data results were sluggish. August is still a leisure vacation month so it’s a bit hard to expect large group RevPAR increases. You would have expected some growth in transient RevPAR from demand increases, given that the unemployment rate is low and consumers have jobs and therefore money to spend on trips. But in the preceding paragraph I made exactly the opposite argument, right? Well, keep in mind that the segmentation data is only capturing higher-end hotels. And our data reflects the truth behind the assumptions that the higher-end vacation traveler was on the road, but they were not paying much more than in the prior year.
Group RevPAR growth was flat (0%), as ADR growth (+2.2%) only kept pace with occupancy declines (-2.1%). Keep in mind that supply increases on the higher end of around 2.1% absorb all demand increases of that same magnitude, so occupancy decline of 2.1% basically implies that group demand was flat at the same level of a year ago.
I like the Group ADR growth number because it continues to support the thesis that group ADR through 2019 will be in the 2% range since the rooms we report on were negotiated three to six quarters ago. This should help upper upscale and luxury ADRs for the next two or three months.
4. Class data
RevPAR growth across the spectrum was basically 1%, driven by ADR growth of basically 1% and flat occupancy. That is the story, with some variations, for all six classes.
So, upscale RevPAR is down, because 3.1% supply growth leads to lower occupancy and flat prices. The 2.2% group ADR lift is probably the halo around the upper upscale ADR change. Let’s see how that continues.
Oh, and coming back to our “working for a dollar” line from the title song of this episode: After all our work and effort, and millions spent on yield management systems and revenue optimization task forces and fighting Airbnb, for most classes, rates increased year over year by a dollar.
5. Top 25 markets
Every developer wants to be in the larger market, but that leads to supply growth at 2.5%, which outpaced demand growth (+2.3%) once again. Occupancy declined (-0.2%) and so, RevPAR was down again (-0.5%). Yes, you can call that flat, but it is worth to pointing at a continued decline and calling that the new normal.
Room rates declined again by 0.2% (behind last month’s -0.8%). The story continues to be that the absolute values of ADR and occupancy are much higher in the larger markets, and the growth rates are stronger everywhere else.
Jan Freitag is the SVP of lodging insights at STR.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.