Sustaining Occupancy Growth

As we move forward in the recovery, occupancy growth continues to build steadily. Committed business on the books for the current quarter through the second quarter of 2011 is ahead of this time last year by 5.4 percent, improving since last month, when it was ahead by 4.7 percent.

Group demand is leading the way. Group commitments are currently 6.7 percent ahead of last year. New group sales (pace) over the past month were very strong, up 35 percent over the comparable period last year. Transient demand is also growing, but at a more moderate rate. Transient room nights reserved are ahead of last year by 3.8 percent, which is the same reading as last month.

Transient segment mix has clearly changed through the course of this recovery. The business segment, consisting of weekday guests booking negotiated or retail rates, remains
very strong, up 10.3 percent. Leisure demand, on the other hand, is down 2.7 percent, primarily due to hard year-over-year comparisons along with some lingering economic headwinds, specifically unemployment. The leisure segment is a concern in an otherwise positive occupancy outlook.

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Despite steadily improving occupancy, ADR growth has been painfully slow. Overall ADR, based on reservations on the books for the current and three future quarters, is only 0.9 percent ahead of last year, basically unchanged from last month. Group ADR is down 3.9 percent. Group ADR is and will continue to be a drag on overall ADR, as low rates negotiated during the downturn work their way through the cycle. Transient ADR continues to build, now up by 3.1 percent. However, transient ADR growth is far slower than desired, given the depths to which ADR fell during the downturn.

Of the 25 North American markets Rubicon regularly monitors, New York leads the way in growth, up 8 percent. The luxury segment is leading in ADR improvement, up 3.6 percent, while midscale hotels without food and beverage are 0.9 percent below compared to the same time last year.

We are nearing that point in the traditional lodging industry cycle where ADR begins to recover more quickly. Considering the dramatic levels of discounting that occurred during the downturn and the current strength in absolute demand levels, we would expect to see double-digit ADR increases in the near future. n

Tim Hart is president and CEO of Rubicon, www.therubicongroup.com.

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