month we reported that the committed occupancy outlook for the current
year had finally turned positive, with group commitments and transient
reservations on the books for 2010 ahead of the same time last year.
The outlook was buoyed by the late booking transient demand that
occurred in the quarter for the quarter (Q1 2010). As we transition
into a new quarter, we are now looking at data through Q1 2011.
While demand for this four-quarter future period is slightly down over
same time last year (-1.7 percent), we are entering the quarter in much
better shape than in the past several
quarters. The closer-in booking patterns that led to strong demand for
the quarter should turn this horizon’s outlook positive as well.
This effect can be clearly seen if we compare the total number of room
nights in the top 25 markets. The accompanying graph below shows the
total room nights committed for April 2010 through March 2011 as of
April 1 compared to last year. The demand in April 2010 already exceeds
April 2009 and each month until September 2010 is on pace or better
than 2009. As consumers re-enter the market, they are making
reservations closer to their arrival date than we have seen in the
past. The natural question to ask is, “How are hotels responding to
this positive demand growth?” The answer is they are responding
As demand continues to grow, pricing conditions, and therefore ADR,
will improve as well. We are beginning to see that happen. While
ADR is not yet in positive territory on a year-over-year basis, the
shortfall compared to the same time last year is narrowing. Based on
reservations on the books for 2010, ADR is now down by 3.2 percent
versus the same time last year. This is a great improvement over last
month when ADR was down 7.3 percent. As we noted before, group demand
and ADR deteriorated after transient demand and ADR fell as the
downturn began. Group demand will trail transient demand in the
recovery. Group ADR is down 4.7 percent, while transient ADR is down
just 2.1 percent.
Transient ADR is improving for two reasons. First, midweek business
demand from the transient negotiated and transient retail segments
continues to improve. These are the highest rated transient segments,
so the shift in business mix toward those segments significantly
impacts overall transient ADR. This phenomenon is very positive because
mix improvements (consumer shifts to higher-rated products) generally
precede actual rate increases.
Second, we are beginning to see signs of pricing strength. During the
depth of the downturn, for every single hotel room rate increase, there
were five rates that were decreased. That ratio has dramatically
improved when we look ahead. For near-term weekday demand, we are
observing as many as 1.4 rate increases for each rate decreased.
Weekend and more distant dates also show improvement with only 1.2 rate
decreases for each rate increased. This trend indicates that hoteliers
are more confident in the overall demand outlook.
And so, the trend of improvement continues. Hopefully we will see it accelerate in the coming months.
Steve Swope is the CEO of Rubicon. More information on the firm is available at www.therubicongroup.com.
Other Finance articles:
Bottom Line Blues
2010: A Revised Outlook
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