Thanks to continued slow but steady GDP and demand growth, hotel industry executives are replacing the baseball analogy with cricket, and for good reason.
NEW YORK CITY—There’s a new consensus among hotel industry executives that the tired old baseball analogy used to describe the lodging cycle is passé. Today, it’s all about the cricket analogy.
And for good reason, according to speakers at this year’s NYU International Hospitality Industry Investment Conference, since cricket is known for having games that can stretch far beyond baseball’s customary nine innings into days at a time, making it a more fitting symbol of the current lodging cycle.
“I think we should get rid of the baseball vernacular, because it’s unclear how many innings we’re going to have (in this cycle),” proposed Hilton Worldwide Holdings President and CEO Chris Nassetta, which prompted Marriott International President and CEO Arne Sorenson to suggest, “Maybe we can go to cricket instead of baseball. Sometimes they get to 100 (innings), right?”
Regardless of the sport of choice, the topic was front and center at this year’s conference.
In general, hotel brand company CEOs tended to take a longer view of industry health, focusing on the long-term positive impact of a continually growing global middle class with the desire to travel. Hotel owners and real estate investment trust executives were a little more near-term in their thinking, though most agreed that GDP, supply and demand are lined up to result in considerably slower but steady growth.
Brand CEOs look ahead
Sorenson, Nassetta, Choice Hotels’ Steve Joyce and InterContinental Hotels Group’s Richard Solomons all agreed that modest GDP growth coupled with still-low supply levels are positive bellwethers of continued slow-and-steady positive performance.
They also pointed out strong travel sentiment from domestic travelers this summer, as well as that continually growing base of middle-class inbound international travelers, as an element that will keep industry performance buoyed.
Sorenson: “I think the most important thing to recognize is we have never had a supply-induced turndown in lodging performance. Never. Downturn in (revenue per available room) has always been driven by the demand side of the equation, and the demand side of the equation is about GDP growth. Sitting here in New York, in the United States, the biggest question there is ‘What does GDP growth look like in the United States?’ It’s pretty tepid. It’s not negative, but it’s pretty tepid. … We’ve said, and we continue to believe it to be the case, that GDP will continue to grow. There’s no logical reason for us to be in a recession today. It might be frustratingly modest in terms of its growth, … but I think we could still have a number of years’ worth of modestly growing demand and therefore with it reasonably good performance on RevPAR and profitability.”
Nassetta: “We are at lower levels of supply going in to the later stages of a cycle than we’ve ever seen. So, in my opinion, the answer of when this cycle turns for lodging is fundamentally when the business cycle turns. It doesn’t feel like, if you look at all of the metrics that are out there—notwithstanding an unemployment number that was quite tepid—it doesn’t feel like if you’re looking at housing, if you look at corporate profitability and liquidity, consumer confidence, what’s going on generally with the financial markets, that we’re on the precipice of seeing a business cycle turn. Until you see that business cycle turn, we’re going to continue to see growth.”
IHG President and CEO Richard Solomons: “One of the things about a conference like this and the conversations we have is if you’re one individual at a hotel or a hotel owner, RevPAR is really important in the short term. Clearly, that drives the performance at the hotel. But for the industry and for the big brands, it’s about total revenues and total demand. … The question is going to be answered differently depending on where you sit. But from where we sit, talking about the industry, then I think absolutely the long-term trends are very good.”
Choice Hotels President and CEO Steve Joyce: “We’ve had demand outstripping supply for six years now, and we’re still not even at regular supply growth. The only place that’s been getting a fair amount of it is upscale, and that’s where the largest demand growth is. I think the question is how high will RevPAR growth be. I think everyone wants 7%. Clearly this year isn’t going to be 7%, but we think the summer is going to be huge. Our view is: gas prices, consumer sentiment, people feel pretty good about their jobs and their companies. Everything we’re seeing is our folks are going to be out there for several trips, and they’re going to be out on the road because gas is cheap. … Our view is follow the economy, see what happens, but there’s no reason to believe that the next several years shouldn’t be pretty positive. The question is how long that runs out. It’s really what happens to the economy and if we get any real growth.”
Owners relatively optimistic
Hotel owners agreed that, barring any unforeseen circumstances, a few more years of slow and steady performance isn’t out of the question, particularly since many said lending is in check.
MCR Development CEO and Managing Partner Tyler Morse: “The hotel industry has never overbuilt itself. In the modern hotel industry, all the shocks to the system have been demand-driven—9/11, the global financial crisis—but we’ve never overbuilt ourselves and I don’t think we will this time. I think that’s why lenders are quite comfortable at reasonable debt levels. They’re capital allocators as well, and they have to put the money out.”
Starwood Capital Group Managing Director Suril Shah: “Over the next two years, fundamentals still look quite good. The summer looks very good, oil prices are still low and the U.S. consumer is going to travel a lot. I say we still have at least two years of the slow, steady growth we’ve seen over the past four years.”
Summit Hotel Properties President and CEO Daniel Hansen: “We expect consistent, mid-single-digit RevPAR growth. That’s based not on New York City or the markets that tend to get the most press. Maybe it’s possible that as an industry we won’t dramatically overbuild and we will have sustained RevPAR growth over the next couple years.”
Loews Hotels & Resorts President and CEO Kirk Kinsell: “We’re at a place in the cycle where we’re looking at what choice we want to respond to. There aren’t any meaningful changes in demand (for us), so supply is probably our biggest issues. As an industry, we forget sometimes that we have an expanding topline. We have margins that continue to expand, and we have unit growth. If you’re a good company and you lever yourselves appropriately and lean into those metrics, I see smooth sailing.”
Additional reporting by News Editor Sean McCracken