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A weaker-than-expected March set the table for a weak April, but U.S. hotel performance exceeded expectations even as ADR growth continues to slow.

Primary Category: Research

Secondary Categories: Americas, Data Dashboard, Infographics, News

HENDERSONVILLE, Tennessee—When March results with their positive Easter comp came in with an abysmal 0.6% revenue-per-available-room growth, operators everywhere braced for impact for the April results that included this year’s Easter holiday impact. But the results were not as bad as feared.

1. The impact of Easter
RevPAR growth in April was positive (+1.2%). RevPAR has now grown 109 out of the last 110 months. Yeah, that 111-month record will be broken. And this whole theory of the terrible Easter Shift impact that we told our kids as a scary bedtime story (or was that just me?) actually did not materialize.

What did materialize was 2.3% room demand growth, which I think was a little on the stronger-than-expected side given two weak weeks in April. Supply growth still stands at 2%, so this then led to a slight increase in occupancy (+0.3%) to 68%.

All absolute monthly values were the highest ever recorded in April. But average daily rate growth was very, very, very small at 0.9%, which is the lowest ADR growth in any April since 2011. Low ADR growth is the name of the game right now. To put that into perspective, for seven years—or 84 months running—positive ADR growth has always been more than 1%. This year that has only been the case in one of three months. Or put another way:

Since ADR changes are now in the sub-1% range, it will be interesting to note how our forecast will change, which our CEO Amanda Hite will present at the NYU conference in early June. Spoiler alert, we are definitely not revising our RevPAR projection upward.

2. 2018 P&L data
Thanks to the hard work of our consulting and analytics crew in Colorado, we now have the full year 2018 P&L data available. There were not a lot of surprises although it is always good to see the actual numbers. Here is what stands out to me:

Revenues are higher than ever on all fronts. Still, our industry generated around $220 billion in 2018, and that is actually slightly smaller than Amazon, which on its own generated $232.9 billion last year.
The important numbers are usually not the absolute values but the percent changes, and they are indeed illuminating:

Revenue from the standard departments was up slightly, but where hoteliers really found opportunity to maximize revenues was in “miscellaneous income.” One of these is the dreaded or revered—depending on your position—resort fee.

Management fees are up as well, and this is likely not due to management contracts getting more expensive but because we are at the top of the cycle and managers were able to make more money for their owners, so they received incentive pay, which skews the percent calculation higher.

The number that most people want to talk about is in the last line: labor cost per available room. A 4% increase is not really that bad, but you combine that with the total RevPAR increase of “only” 2.9% and you get a formula that is not sustainable in the long run.

I was chatting with a GM of a upper upscale hotel in NYC and asked him about the wage pressure that we observe around the country, and he reminded me that his labor cost for 2019 and 2020 was basically “baked”—it was negotiated two years ago and there is full certainty in his payroll going forward. Well, or at least until the union contract expires. But I thought the idea of unions as a governor on labor costs—or at least as a more predictable data input—was an interesting insight.

3. Segmentation data
The Easter shift is obvious in the data as group demand and occupancy declined as expected. What was probably a bit worse was the lack of ADR growth in either category.

April’s 0.5% increase is the lowest group ADR growth since December 2017, so not a good sign at all for things to come. Even in March 2018 when group occupancy declined 5.4%, ADR still increased 2.1%. Looking back at the last three years of Easter impacts (and their respective shifts) seems to suggest that ADR growth on the group side has slowed significantly:

In addition, you can see that the group ADR growth for the non-Easter month went from 4.9% and 4.7% to just 1.8%. That’s also not a good indicator.

What certainly helped was the 5.1% transient demand increase. This is of course the reverse of the 0.7% demand drop in March 2018, which in itself was the reverse of the 5.9% demand jump in March 2017. Confused yet? That is the beauty of calendar shifts. And keep in mind that the occupancy results got worse each time since supply growth increased each consecutive year.

4. Pipeline data
The number of rooms in construction is up 10% from last April, and I am now reversing my stance on the impact.

Since September 2017, the monthly increase was always less than 10%—actually less than 1% between late 2017 and mid-2018—but it has exceeded 5% since October and is now worth calling a trend. The times of slowing construction growth are over, and we could see the impact of this trend in the rising supply percent changes in the coming years. That said, anecdotally the impact on the industry may still be muted because of construction timing overruns. We hear that specialist construction crews are hard to find, and therefore the open dates of the projects are pushed further out. So the increase in the construction numbers by itself is only one part of the equation. But stay tuned to this data set. The percent increases are of course all over the map since the bases are different for each class, but what’s noteworthy are the 50% increase in luxury and midscale. The upscale and upper midscale classes’ increases may seem small, but the absolute value of about 129,000 rooms equates to 63% of all rooms in construction.

5. Top 25 markets
Since the total U.S. results were not as bad as feared, the same was true for the larger markets. A total of 14 of the top 25 markets reported RevPAR increases, some of them pretty hefty. Minneapolis (+17.1%) hosted the NCAA Final Four (Sunday, 7 April RevPAR gain of 285%). Norfolk (+12.8%) had a great week leading up to Easter break (week ending 20 April: +24.9%). Actually, looking at our School Break report shows that more than 40% of all high school students were on break in the week leading up to Easter Sunday:

This then may help explain why some of the more leisure-oriented destinations did OK in April.

San Francisco RevPAR was actually down 3.2%.

In all, the top 25 markets increased RevPAR by just 0.3% because occupancy declined 0.5%. That is, was, and will be a function of supply increases of 2.5%. Demand grew, but only by 2%. A total of 13 markets lost occupancy, but only seven lost ADR. Here are six markets that recorded the steepest RevPAR declines. (Why 6? Well, the list then includes SF):

Last month I said that Houston was getting less bad. It’s still bad, though, the RevPAR decline got a little worse than what it was last month (-7%).

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.

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Headline: US hotels exceed expectations in April despite Easter

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