Hospitality Vision US Performance Review

The United States (US) hotel industry welcomed the dawn of 2010. Performance measures in the first half of 2009 were particularly troublesome for many companies, and only in the closing months of that year were there glimmers of hope that the worst was over. By December 2009, a number of major markets started to experience increases in occupancy and
revenue per available room (revPAR), following what in some cases had been multi-year, record-breaking declines. In particular, steep price discounting appeared to be a less important strategy in filling rooms. As noted in this report,domestic tourism activity was starting to revive for a few select markets, while declines in international travel were
lessening, and business travel remained mostly stagnant.

The worst recession in 60 years left the travel industry particularly weakened in 2009, given that consumers and businesses were intent on saving rather than spending. In 2009, domestic and international travel spending in the US declined a sharp 8%, to $712 billion, according to the US Travel Association (USTA). Even with the 4.7% increase
forecast for 2010, spending still will not have returned to 2008’s level of $772.9 billion. By segment, leisure travel spending is expected to rise nearly 5% in 2010, while business travel spending is forecast to increase 4%, according to the USTA.

To help strengthen overseas-tourist interest in the US, various travel representatives, including the American Hotel and Lodging Association, have been working toward the passage of the Travel Promotion Act. This legislation would establish a non-profit corporation to better communicate US entry policies and promote leisure and business travel to the US.
Economic consulting firm Oxford Economics has estimated that the bill would attract 1.6 million new visitors to the US, create 40,000 jobs, and add billions of dollars in new tourism spending. The Act passed the House and Senate in late 2009 but is pending final approval.

The airline industry in 2010 will continue to face hurdles that could deter some individuals from flying. The government’s discussions in late 2009/early 2010 for tighter security measures for passengers flying to the US have led to increased debate and concerns around security versus privacy. Increased fees from airlines will also add to traveler frustrations and costs.
The United States (US) hotel industry welcomed the dawn of 2010. Performance measures in the first half of 2009 were particularly troublesome for many companies, and only in the closing months of that year were there glimmers of hope that the worst was over. By December 2009, a number of major markets started to experience increases in occupancy and
revenue per available room (revPAR), following what in some cases had been multi-year, record-breaking declines. In particular, steep price discounting appeared to be a less important strategy in filling rooms. As noted in this report, domestic tourism activity was starting to revive for a few select markets, while declines in international travel were
lessening, and business travel remained mostly stagnant.

The slight improvement in travel demand at year-end 2009 led some analysts to revise their forecasts upward. Smith Travel Research (STR) in November reported that it expects US hotel occupancy to experience a slight 0.2% dip in 2010, following a 9% decline in 2009, while revPAR is forecast to fall 3.6% for
the year, after a record-setting 17% drop in 2009. For 2011, STR expects a stronger recovery, with occupancy up 2.4% and revPAR rising 5.5% over 2010.

Analysts at Deutsche Bank Securities are somewhat more optimistic. Their January 2010 report noted they expect hotel occupancy in 2010 to rise 2.1% and revPAR to gain 0.5% over 2009.

Looking ahead, growth in the supply of hotel rooms is expected to ease, which should help improve industry profitability into 2011. The total active hotel development pipeline in December 2009 included 3,829 projects comprising 401,090 rooms, according to the STR/TWR/ Dodge Construction Pipeline Report. This represented a
35% decrease in the number of rooms in the total active pipeline compared with December 2008.

The remainder of this report discusses recent trends for 14 major hotel markets in the US. The occupancy, average room rate and revPAR figures used are from STR.

This report is only available to members of The Luxury Marketing Council