Are We In a Recovery?

No doubt about it—STR data and the collective industry mood are getting better. There were more than 100 million rooms sold in the U.S., the highest number we ever reported. With unemployment numbers not getting worse and corporate profits increasing, travelers seem to have rediscovered travel and meetings. We debate the positive signs in the market, but sound a word of caution because not all indicators are favorable.  

Proof that the recovery is here:

• Demand is increasing | Over the last seven months the number of rooms sold has increased by more than 7 percent. The industry year-to-date this year sold more than 40 million rooms more than year-to-date 2009.
• Transient demand is the driver | Transient demand (those rooms that were sold in increments of 1 to 9, as opposed to group rooms, which are sold in blocks of 10 or more) has increased a healthy 8.4 percent through July. This year has shown the strongest transient room demand since we started tracking this statistic in 2002—even stronger than the performance of the heady days of 2007.  
• Upper-end occupancies rebound strongly | In the three scales—luxury, upper upscale, and upscale—the year to date occupancy increased between seven and nine percent. Luxury hotels lead the increase with 9.9 percent. For the three scales the number of rooms sold in 2010 is up 1.4 percent, or approximately two million rooms.  
• Top 25 markets lead rate growth | Average daily rate in July increased 2.5 percent for the 25 largest markets (excluding Las Vegas)—well above the U.S. average of 0.6 percent.  Fifteen of the top 25 markets reported rate increases, and in the case of New York, ADR increased almost 12 percent.

Proof that the recovery is not here yet:

• The math is deceiving | Comparing the 2010 numbers to a year ago may give a false sense of security because 2009 operating results were a reflection of some of the worst economic times since the Great Depression. It should not be at all surprising that the demand growth rates are up. However, it should not be overlooked that through July hoteliers sold 6 million rooms less than during the first seven months of 2008.
• NYC and luxury hotels skew the data | Excluding the hotels in the New York City market and the luxury chain scale segment from the U.S. numbers reveals a slightly less compelling ADR picture. Room-rate growth declined from the -1.4-percent figure to -2.3 percent. During July, the U.S. room rate of $99 declined to $93 when excluding the high end, and the ADR growth rate for July declined from +1.3 percent to +0.5 percent.  
• Group demand remains sluggish | While some 325,000 more group rooms were consumed through July 2010 than in the prior year, the comparables with 2007 and 2008 are a lot less flattering. This year, the group room demand is still 1.5 million rooms below 2008 levels and 2.4 million rooms below 2007 figures. Without a solid base of group rooms, hoteliers will feel compelled to continue to discount transient business to build up occupancy—which will harm the overall industry’s ADR growth and profitability for the foreseeable future.
• So, are we in a recovery? | The good news for STR is that we can always ask for more time to study the data, so give us a few months and we will be able to say with certainty. In the meantime, we suggest that hoteliers trust the positive signs, but maintain a healthy dose of realism.

Jan D. Freitag is vice president of global development at STR.