There appears to be some exciting—and perhaps frightening—times ahead for hotel revenue strategists. As hotel industry performance begins to level off, and even dip in some markets and segments, revenue managers need to adjust their approaches to channel management, business mix, rate-setting and use of data in order to succeed in the new paradigm that is approaching.
Mid-year performance numbers from STR and public hotel company earnings reports show a distinct slowdown in hospitality metrics after an unprecedented seven-year upswing following the end of the Great Recession.
Through June, according to STR, all performance measures for U.S. hotels were up for the year, but at nowhere near the levels recorded in the past few years. Year-to-date through June, hotel demand was up an anemic 1.6%, which was reflected in flat occupancies and so-so 3.1% increases in both average daily rate and revenue per available room.
The industry is doing OK, but not gangbusters, as it had become accustomed to since the middle of 2009. And while earnings reports from public hotel companies reflected the industry’s general malaise, it’s important to look at these results more carefully to see where the real softness—and also continued strength—lies in the industry.Corporate, group softening prompts focus on hotel revenue strategy Click To Tweet
Although second-quarter earnings released by public companies in the past few weeks reflected the overall market—with RevPAR increases generally in the 2% to 4% range—executives from the brand companies noted a bifurcation of demand trends. In general, leisure business has held up, while corporate and, to a lesser extent, group business is softening.
Choice Hotels International posted a strong 4.3% increase in domestic RevPAR during the second quarter. Company executives attributed that performance, which beat both company estimates and the industry as a whole, to high levels of leisure business. By their analysis, rising consumer confidence and lower levels of unemployment have made leisure travelers much more resilient than business travelers.
Officials of business-oriented chains were more subdued in their second-quarter comments. Hilton Worldwide President and CEO Chris Nassetta said sales volume from business travelers grew 2% during the second quarter. Similarly, Marriott International CEO Arne Sorenson said rooms sales from the company’s 300 largest corporate customers grew by less than 1% during the second quarter.
Some hotel companies and properties were hit hard by the slowdown in oil production that crushed hotel demand in energy markets, such as in the Dakotas, west Texas and Louisiana. La Quinta Holdings, for example, reported overall flat performance for the company in the second quarter, with hotels in oil markets posting a disturbing 12% decrease in RevPAR.
A strong dollar and its effect on international travel to the U.S., as well as effects of Brexit and worries over security in Europe, are blunting global travel levels as well.
While in 2015 the U.S. hosted nearly 78 million international visitors, up 3% from the year before, international visits are down this year and look similar for 2017. Gateway markets such as New York City, Los Angeles, Orlando and Miami are feeling the brunt of depressed in-bound tourism.
Most public hotel companies have tempered their RevPAR and profitability outlooks for the rest of the year. And Fitch Ratings recently offered some dire projections for the U.S. hotel industry for the next 18 months. The company is calling for RevPAR increases of 3%-4% during 2016 and 1%-2% next year, followed by RevPAR declines in 2018.
To be sure, the hotel industry is facing an uncertain future—not necessarily a bleak one, but an environment of change, with those changes potentially occurring at a fast pace.
When RevPAR numbers begin turning negative and an overall market faces a decline in demand, the best way a hotel can win and grow profitability is by taking share from the competition.
That can be done by being smarter and faster than the hotels across the street. Don’t just follow the competition as they slash rates in an effort to maintain occupancy. Make sure you’ve got the best data — trust it — and remain confident in your demand forecast and revenue strategies.
Timing is as important as gathering and processing the data. The faster a revenue manager can understand and react to changing market conditions, the faster he or she can adjust prices to optimize demand ahead of the competition and drive RevPAR Index gains.
There are interesting times ahead for the hotel industry, but change and challenge need not be insurmountable obstacles to success and continued profit growth.
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