Freitag’s 5: April RevPAR growth rebounds after slow Q1
Freitag’s 5: April RevPAR growth rebounds after slow Q1
26 MAY 2016 9:47 AM

The U.S. hotel industry saw RevPAR increase 5% in April, and while the year-over-year figures were the best so far in 2016, the previous weak performance might not be gone for good.

HENDERSONVILLE, Tennessee—What goes down must come up.

Revenue per available room for the United States hotel industry in April was driven equally by occupancy and average-daily-rate growth. But does this mark the reversal of low growth we’ve seen so far this year?

Here are five things you need to know about STR’s hotel performance data for April. (STR is the parent company of Hotel News Now.) 

1. RevPAR grew 5%
This growth was driven equally by occupancy (+2.2%) and ADR (+2.8%) increases. RevPAR has now been positive for 74 consecutive months.

Yes, RevPAR growth of 5% was the best so far in 2016 and the best since last October, but I really doubt that this marks the reversal of the recent rather weak performance. Not to rain on anyone’s parade, but what strikes me is the lack of pricing power despite a demand push of 3.7%, which is the highest since September. Keep in mind that a calendar shift (Easter moved from April 2015 to March 2016, lifting April 2016 results) had positive implications.

2. Occupancy of 68.1% was the highest April occupancy ever recorded
Additionally, this April was the first time we ever sold more than 100 million roomnights in April. Of course, room supply has been at record levels for a long time, and each month we have some 2 million new rooms that need to be filled.

In April, lo and behold, that happened as supply growth of 1.5% was outpaced by demand growth of 3.7%. But keep in mind that in March demand only grew 1.1%, setting the pace for the year so far. April has been the only month this year that registered actual occupancy growth.

3. Group occupancy increased 7.6%
The rebound in RevPAR from last month was obviously a shift from group travelers who did not travel in March but instead traveled in April. This is a welcome relief, because group occupancies had declined for five months straight.

Is April an outlier or trend reversal? That is the question.

Just as I do not like the lack of strong ADR increase in the national numbers, I also do not like the group ADR increase (for all hotels) of only 3% for the month. The point is if these rates were negotiated in the strong occupancy environment from six or 12 months ago when the industry looked like it had lots of pricing power and hoteliers had good demand on the books, why is the rate increase “only” 3%?

To coin a phrase: “If not now, then when?” We will now move into an environment where rate negotiations going forward will only get more difficult as new supply opens. Just like in 2014, I think we will look back at this time and see an opportunity lost.

4. The top 25 markets underperformed
April was a pretty good month for the nation, and you would expect the same for the top 25 markets. Alas, RevPAR growth for the large markets was only 3.8%, but for all other markets it was 5.8%. This represents a drastic underperformance for the top 25.

The key difference is of course—stop me if you heard this one before—supply growth.

Top 25 market supply increase was at 2% versus 1.3% in all other markets. Combine this with uneven demand increases (+3.9% for all other markets versus +3.4% for the top 25) and you get very different occupancy gains. ADR was up 3.1% for all other markets and a more muted 2.4% in the larger metros. And that despite the fact that almost eight out of 10 rooms were occupied in those larger markets (occupancy was 77.5%).

5. April YTD RevPAR growth of 3.3% is the lowest this cycle since the recovery started in 2010
And it is only slightly better than the +2.3% in 2008, just as the cycle post-9/11 ended.

Of course those two cycles were cut short because of a macroeconomic shock, and we do not expect that this time. Still, the data is weak.

Data Trivia: The long-run, 29-year average annual RevPAR growth is 3.3%, so we are basically right at par. But then again, who wants to be average? Year-to-date occupancy is only up 0.2%, because new supply (+1.5%) finally matters and demand barely outpaces the new room additions.

So far this year, group occupancies have declined slightly (-1.5%) and transient occupancy has increased slightly (+1.4%), but those increases are so small that the increases in supply will likely negate them in the coming quarters. Sadly, transient ADR so far this year is only up 1%, and if there is one number that I really think could set the tone for the foreseeable future it is that small number.

If hoteliers have no pricing power with transient travelers they have no pricing power overall, and maybe that is where the story (and the up cycle) ends.

The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Columnists 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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