Quarterly Trends in the Hotel Industry provides current information on average daily room rates and occupancies in a comparative year-to-date format. It was developed to help hoteliers, financiers, and investors evaluate current trends in the hotel industry. Data used to delineate these trends were compiled from hotels throughout the United States.
After recuperating, will the U.S. lodging industry walk, run, or fall on its face?
Oversupply - Recession - Persian Gulf War - Discounting. Strike those words from your dictionary. No longer do we need to talk about the indulgences of the late 1980s or the economics of the early 1990s. The U.S. lodging industry has recovered and we are about to embark of a period of potentially high profitability.
All future indicators look extremely favorable.
When facing the future, it is imperative that the custodians of the nation's lodging industry react in a prudent fashion that will allow them to maximize their current potential, while not spoiling the overall operating environment for the long term.
A quick review of 1994 U.S. hotel performance shows a year that started off moderately and ended in a flourish. The first half of the year saw occupancies continue their three-year growth trend; however, average room rate growth still lagged behind inflation. Fortunately, a surge in leisure travel resulted in record summer and fourth quarter occupancies in several markets. In fact, the 3.9 percent growth in lodging demand achieved in 1994 was the greatest rise since 1989. This fortuitous surge in demand over supply finally allowed hotel operators to benefit from basic economics and increase their room rates at a pace greater than that of inflation. With room rates growing faster than expenses, it can also be assumed that the significant gains made in operating profits during 1993 were carried forward into 1994.
The improved performance was almost uniformly enjoyed by hotels in all regions of the nation. The lone exception were the hotels located in Florida, still suffering from the ominous news of attacks on tourists. One of the brightest pieces of news from 1994 was the improvements made in several of the major cities in the United States. Hotels in New York, Philadelphia, Chicago, Dallas, St. Louis, New Orleans, Phoenix, and Los Angeles all achieved occupancy increases in excess of 4.0 percent and average daily rate gains greater than inflation.
Looking forward to 1995, we see an opportunity for hotel managers to continue their gains in occupancy, average room rates, and profits. Another year of 3.9 percent growth in demand would result in a 2.4 percent increase in occupancy. And, with managers finally able to raise rates greater than inflation, the operating environment should allow for continued improvements in profitability. With all this potential staring the industry in its face, will industry leaders overindulge or manage smartly?
With occupancies approaching the 70 percent mark, we are already seeing increased hotel construction activity. However, hotel company development plans are much more judicious than in the past. Hotel values are still less than replacement cost, making it smarter to purchase an existing hotel, rather than build a new one. The major franchisors are more sensitive to franchisee impact, and the limited amount of financing that is available is becoming more expensive as interest rates rise. PKF Consulting believes these factors should curb the prospects of overdevelopment. However, keep a cautious eye on the new Congress as they prepare "business-friendly" tax legislation. Let's hope any changes to the tax code will lessen oppressive operational regulations, not provide artificial financial incentives for development.
Let's enjoy 1995. For the first time since 1982, the U.S. lodging industry is on the threshold of a period of relative normalcy. If we restrain ourselves from overindulging and manage smartly, all parties involved in the hotel industry stand to prosper for an extended period. Like the doctor (or your mother) says, "Take it easy, you're just over the flu."