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.
A glimpse at the performance of major lodging markets during the first quarter of 1995 shows that the U.S. hotel industry has truly reached the top of the recovery curve and entered the early stages of potential prosperity.
Spurred by a 3.4 percent increase in demand and a 3.9 percent increase in average daily rate, U.S. hotels achieved a 7.5 percent increase in rooms revenue over the first quarter of 1994. When you stack the 3.4 percent increase in demand against a 1.3 percent increase in supply, you get a 2.2 percent increase in nationwide occupancy. With average room rate growth the primary driving force behind the growth in revenues, it can be assumed that profit margins have also increased, thus further improving the bankrolls and attitudes of hotel operators, owners, and lenders.
For several markets where winter is the peak season (Phoenix, Scottsdale, Waikiki, New Orleans, etc...), the occupancies achieved during the first quarter of 1995 were slightly less than the occupancies of the first quarter of 1994. Meanwhile, the average daily room rates in each of these markets grew in excess of 7.0 percent, quite remarkable during a period of 3.0 percent inflation. With occupancies remaining in the 80s, it is apparent that hoteliers in these winter destinations have found that they can raise rates without significant loss of occupancy.
The obvious exceptions to this trend are the Florida markets, where it still appears that discounting is needed to induce the winter snowbirds.
Winter non-oases such as Boston, St. Louis, Nashville, and Seattle all achieved occupancy increases greater than 6.0 percent. In the process, however, they were unable to improve room rates significantly. Obviously, these markets do no carry the same automatic level of appeal, and therefore must hold rates in order to attract more demand to the area. Nevertheless, the great improvement in rooms occupied was sufficient enough to boost room revenues higher than the rate of inflation, even in these markets of low rate growth.
First of all, we must remember that tremendous gains in occupancy and average room rate were made during the second half of 1994, as compared to the second half of 1993. Therefore, it is highly unlikely that we will see the same percentage growth during the latter half of 1995 that we saw during the same period in 1994. Yes, growth in occupancy and average rate should continue, but not at the same rapid pace.
Secondly, some economic indicators released near the end of the first quarter indicate a potential slowdown in the growth of the economy. The growth rate for G.D.P. in the first quarter was 2.8 percent, the slowest rate of growth since the summer of 1993. In addition to the slowdown in economic growth, actual declines were posted for the Index of Leading Economic Indicators, residential construction, and consumer confidence. If consumer confidence continues to wane, will hoteliers be able to continue raising rates even with the highly favorable balance of supply and demand? Fortunately, the decline in value of the U.S. dollar should result in an increase in in-bound travel.
As we have stated in prior editions of Trends, it is just as important for hotel management to act skillfully, creatively, and responsibly during periods of prosperity as it is during periods of recession. While we are currently basking in the welcome winter results, we must remain diligent in light of a future that is only tenuously bright.