Hotel industry trend spotters gathered at the AH&LA Hospitality Leadership Forum at the International Hotel/Motel & Restaurant Show during the weekend to present some bullish positions on the lodging business. These prognosticators said leisure travel has been generating the most industry growth while people are driving value and mid-level brands domestically.
So, the good news is that if the hotel industry were a child, it would have passed the teenage growth spurt and be headed towards becoming a mature young adult whose growth and development will continue for the coming years. Albeit, not at quite the same rapid rate.
Still, according to these experts, growth is strong in the industry with little indication that this expansion is coming to a halt anytime soon. Every single day the industry is selling 1.49 percent more rooms than on the same day last year. In 2006 2.7 million rooms sold daily, yet 20 years ago there weren’t even that many rooms in the US lodging industry. In October alone ADRs were up 7 percent nationally. Says Mark Lomanno, President, Smith Travel Research, “That’s the highest rate since the industry began tracking them back in the 1980s.”
Pat Ford, President, Lodging Econometrics, is also confident in the industry’s ability to continually flourish, but he’s cautiously optimistic as he notes the first signs we’re entering a maturity cycle. “The economy is robust, but slowly slowing down. The housing market is down, making consumers nervous and that is turning into a softening in the leisure market.” Despite the downturn in the housing market, and reactive consumer behavior, 2006 was a very strong profit year for hotels. And, because debt and equity drive decision making Ford notes, “The era of easy money is not over yet. This implies that real estate wise there’s going to be more M&A, expansion and reflagging unless there’s a change in operational performance.” Performance has been good enough to anticipate 520,000 new rooms coming up in this cycle. Keeping an eye on the condo and residential units/mixed use buildings is important too. There was an upscale tick recorded in luxury businesses and restaurants last quarter, yet 4,000 residential hotel units were cancelled, a 15 percent reflection of the residential pipeline. On a more positive note, in 2006 there were just 80,000 new rooms and 135,000 new rooms are anticipated in 2008.
Two thousand and eight should be a benchmark year for measuring RevPAR. “We won’t have the same rates of RevPAR growth we’ve had in past years, says Bjorn Hanson, Ph.D., Principal, PricewaterhouseCoopers Hospitality Leisure Group. Instead, Hanson and his colleagues see RevPAR coming strictly from ADR, not from occupancy.
RevPAR, ADR, and economics aside, there are a number of mitigating societal factors impacting the lodging business. Chiefly, cost and hassle said Douglas K. Shifflet, President & Chief Executive Officer, D.K. Shifflet Associates, Ltd. Shifflet primarily points to skyrocketing gas prices and the difficulty and effort of air travel these days. Who can forget all those trashcans overflowing with bottled water confiscated at the security checks by the TSA? The response to security hassles has been direct; people who have the opportunity to cut back on business travel have taken advantage of videoconferencing and stayed home. And those who do have to travel for business are cost conscious and transitioning to a more downscale hotel environment than one they may have chosen in years past. Shiflet acknowledges, “As rates go up, people move down in hotel level to control costs.” And hassles at the airport are not the traveler’s only concern. They are eager to have their hotel experience streamlined as well says Shifflet. He advises, “Don’t fix everything up in a room; travelers want hassles to be reduced, to cut the lines.”
Adds Peter Yesawich, PhD, Chairman & Chief Executive Officer, Yesawich, Pepperdine, Brown & Russell, “The status symbol for today’s traveler is getting a better rate than the guy in the next room. “
It’s more than likely that the guy in the next room is traveling for pleasure, not business, Yesawich noted that of the 300 million people in this country one third of American households don’t travel and only one third of the folks who do travel are business travelers. He comments, “Traveling for leisure is a way to enhance their lives.” And American tourists are so eager to enhance their lives through travel that two thirds of them would trade a decrease in pay for an increase in vacation time. Now that’s good news.
