The country’s general economic news leads us to grow ever more wary of the strength of the recovery. The anxiety is palpable that growth will sputter, and we will find ourselves back in a recession. There is a lack of significant jobs growth. Consumer confidence is declining. Reported GDP growth is being revised downward. The government’s original stimulus has run its course. The deficit is sky high, making additional stimulus problematic, economically and politically. And the dark cloud of possible deflation looms overhead.
On the other hand, each day seems to bring some news to the contrary. Corporate earnings continue to improve. The manufacturing sector is strengthening. The trade deficit is narrowing. If we conclude nothing else, these are uncertain times indeed.
That said, headlines from the hospitality industry are increasingly positive. Monitoring forward-looking demand, our outlook has been improving steadily throughout the year. Occupancy growth led the way. Group and business demand, which was particularly weak in 2009, has been growing steadily. Committed business on the books for the current quarter through the first two quarters of 2011 is now up 4.6 percent versus the same time last year, an improvement from last month when it was up 3.1 percent. Group commitments are up 5.2 percent this month, another improvement over last month when they were up 4.5 percent year over year. Group pace, or new group business added, is up 3.3 percent over last year. Transient stays are up 3.8 percent over last year, while transient pace is up 3.7 percent. The business segment, which Rubicon considers to be weekday guests booking retail or negotiated rates, is up an impressive 10.7 percent.
Average daily rate (ADR) is improving as well, albeit far more slowly than desired. ADR is benefiting from an improved business mix, given that business customers pay the highest rates. Group ADR is also generally higher than leisure ADR. With forward-looking occupancy and ADR, based on advance reservations, now both growing, the outlook for RevPAR is quite positive.
This favorable outlook is broad-based. Of the 25 North American markets Rubicon regularly monitors, the occupancy and RevPAR outlook improved since last month in 22 markets (see chart at left for details). The ADR outlook improved in 18 markets. Broader ADR improvement will require continued and increasing pricing strength in the transient retail, discount and qualified segments, which are the segments with dynamic pricing. Higher pricing there is needed to offset the drag from lower group rates, which were negotiated months ago and will take more time to recover.
For better or worse, travel and hospitality demand is correlated to overall economic growth and business conditions. We look to a continued strengthening in the overall economy to support sustained demand and revenue growth in the hospitality industry. But with such prevailing uncertainty, we keep a wary eye on the strength of advance bookings, since they provide a reliable leading indicator of what is to come.
Tim Hart is president and CEO of Rubicon, www.therubicongroup.com.