Economic headwinds, sluggish average daily rate (ADR) growth, lack of group demand, government travel cuts, and rising transient demand were hot topics at the fifth annual Hotel Data Conference at Loews Vanderbilt Hotel in Nashville this week.
During the opening general session on Wednesday, panelists established the hotel industry’s position and shared key metrics. In July, the industry sold 108.5 million rooms—more than any other single month—and ADR reached a new high of $108.7, said Jan Freitag, SVP of global development for STR. Although revenue per available room (RevPAR) is up, it’s not growing as fast as before, he cautioned, and occupancy growth, while at a healthy 63.2 percent, is also slowing down.
“We’re now in this environment where absolute levels of occupancy would give pricing power except we’re not seeing room rate growth that much,” Freitag says. “It seems a little bit like we came out of the gates pretty strong and we were ready to take off…and we’re not soaring as much as we wanted to.”
Adam Sacks, founder and president of Tourism Economics, said a set of risks face the U.S. economy, such as rising interest rates, the inevitable unwinding of quantitative easing, and the effects of austerity. Although gains over the next 12 months for occupancy and ADR will be harder won, it’s not cause for panic, he said. “We’re at peaks in terms of RevPAR and ADR,” he said, “and to consolidate those gains, even if we’re not able to go much further given limited supply growth, that’s not a bad story.”
Freitag expressed concerns that the United States is now 27 months into the economic recovery, and performance is on a downward trajectory. He warned that the hotel industry should worry about lack of ADR growth, group demand, and government group demand. ADR is a concern because 60 percent of rooms being sold are in the upper midscale, midscale, and economy classes.
“That’s great except that’s where all the supply went, so the absolute level of occupancy in those classes is still well below 60 percent, which means the pricing power in those classes is also still not quite as high as it is for the nation overall,” he explains. “That depresses pricing overall because that’s where the all the rooms are that we’re selling.”
While transient demand is 30 percent higher today than it was in 2007, total group demand has decreased 2 percent compared to 2007. “We’re selling more rooms than ever except the group demand is still lower,” Freitag says. Developers are taking note, because there has been a decrease in the number of new hotels opening with 50,000-square-foot-plus meeting space—only two opened in 2011, zero in 2012, and just one is scheduled to open this year (Omni Nashville Hotel).
Industry members should not be concerned with the increase in the U.S. pipeline, however, because it’s still well below the peak of 211,000 rooms in 2007, Freitag said. In July, under construction rooms were up 23 percent year-over-year, but that only equates to 76,000 rooms.
The good news is that travel and tourism will continue to be a key driver for the U.S. economy, said Val Bauduin, U.S. hospitality leader at Deloitte and Touche. By 2023, travel will account for 10 percent of the gross domestic product (GDP) and one in 10 jobs will be travel related, he said. This will add more than 70 million jobs over the next decade, two-thirds of which will be in Asia. He also noted that hotel values on a per key basis are steadily rising, with 9.1 percent growth this year that is expected to continue into 2014 with a 7.4 percent boost.
Google’s managing director for travel Rob Torres said a 62 percent growth in mobile hotel terms is projected from 2013 to 2014. Almost 35 percent of all hotel queries that come through Google, he added, are coming from a mobile device. And 71 percent of travel-related sequential device usage is for research. “How you strategize and develop for different devices doesn’t matter anymore—you have to develop for all devices and have a strategy with a clear, concise brand representation,” he said.
In the next couple of years, consumer data will be the biggest differentiator, but it has to be properly analyzed, Torres concluded. “Those that win are going to be the ones that use that data most relevantly,” he said, “and use it to help them better provide a more encompassing experience for their customers.”
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