News for the Hospitality Executive |
by Robert Rauch
September 2012 The lodging market has outperformed the economy this time around. Employment levels continue to be weak and growth in consumer spending lags along with consumer confidence. Europe is on life support, China, while enjoying a strong economy in recent years is showing signs of decline and the Fed is considering further incentives to move the US economy at a better pace of growth. This is not what we would expect from election year economics, yet our industry has seen strength in our metrics for two straight years! By and large, by all measurements, travel demand is up. This year, the hospitality industry has seen growth in both occupancy and average rate. In Q2, 2012, the U.S. hotel industry’s occupancy increased 3.1 percent to 65.1 percent, average daily rate rose 4.7 percent to $106.41 driving revenue per available room up 7.9 percent to $69.32 according to Smith Travel Research (STR). TravelClick, in its North American Hospitality Review (NAHR), found that the hotel occupancy outlook for third quarter 2012 through second quarter 2013 is strong, with group committed room nights up 5.9 percent and transient room nights reserved up 7 percent based on current reservations and group commitments on the books in comparison to same time last year. The July NAHR looks at group sales commitments and individual reservations in 25 major North American markets booked by July 1, 2012 for July 2012 to June 2013. Committed occupancy for the third quarter of
2012 through
the second quarter of 2013 (or the next 12 months) is up 6.1 percent in
comparison to same time last year, with 20 of the top 25 North American
markets
showing increases in committed occupancy for this time period. Average
daily
rate is also growing, with an increase of 5.5 percent over the same
time last
year. This information, coupled with detailed information on each of
the next
four quarters, verifies the outlook by most forecasting firms that
suggests
REVPAR increases of 5-10 percent over the next 12-18 months in the US. Leisure Travel Trends Despite years of a challenging economic
climate, new
research points to a revival of the most meaningful driver of American
vacations: the emotional connection between travel and quality of life.
Leisure
travelers are doing less of the things that characterized the economic
hardship
of recent years and are now adopting more behaviors that confirm the
importance
of travel in their emerging lifestyles, according to the newly released
MMGY
Global/Harrison Group 2012 Portrait of American Travelers, a
nationally-representative
survey of 2,527 U.S. households. The in-depth, annual survey reveals that
while the average
number of overnight leisure trips taken during the past year has
remained
essentially unchanged versus the previous year, the motivations
underlying
these getaways are evolving. “Trading down,” “staycations” and other
cost-conscious travel behaviors that emerged during the Great Recession
have
waned, and the new findings augur well for a boost in 2013 travel
spending
thanks to a renewed interest in quality experiences that Americans deem
“worth
it.” The new data confirms that the U.S. travel
and tourism
industry is on pace for another record-setting year and, if these
trends
continue, international visitors could end up injecting more than $169
billion
into the U.S. economy by year-end, the Commerce Department says. Pundit Forecasts An updated lodging forecast released
recently by
PriceWaterhouseCoopers (PwC)
anticipates “revenue per available room recovery in 2012 to remain
intact, with
slightly stronger gains in both demand and pricing than previously
anticipated.” US RevPAR is now expected to increase 7.2 percent in 2012
and 5.6
percent in 2013. According to the September 2012 edition of
Hotel Horizons
published by PKF Hospitality Research, LLC (PKF-HR), the company is
forecasting
that on any given night in 2012 nearly 3 million of the nation’s 4.8
million
hotel rooms will be occupied. This is 5.6 percent greater than the
levels of lodging
demand accommodated in 2007, the year prior to the recession. Twelve markets across the country still are
renting fewer
rooms than they did prior to the recession. Lagging the most in
accommodated
demand are Tucson, Ariz.; West Palm Beach, Fla.; and Atlanta. Other
cities are
Albuquerque, N.M.; New Orleans; Sacramento, Calif.; Oahu, Hawaii;
Phoenix; and
Tampa, Fort Lauderdale, Orlando and Jacksonville, Fla. The reasons why these 12 cities are lagging
vary, according
to PKF-HR. Tucson is a market dependent on group and leisure travelers,
two
segments that have trailed behind the growth in corporate demand. “In
Atlanta,
weak employment, especially in the outlying suburban areas, has impeded
the
recovery of the lower-tier properties located in those sectors of the
city,”
Woodworth noted. In the Top 25 largest lodging markets only New Orleans
and San
Francisco have reached and surpassed their prior rate peak. Hotels in
Washington, D.C. and Chicago still charge about $12 and $13,
respectively, less
than they did during the “heyday” of 2007. International Travel Forecast Average rates and occupancy levels in the US
are likely to
increase over the next few years for a very new reason. “Leisure demand
from
abroad, fueled in part by the new Visit USA campaign, will stimulate
new
demand” according to Arne Sorenson, president and CEO of Marriott
Hotels &
Resorts during a GBTA panel discussion in Boston last month. The U.S.
has about
5 million hotel rooms and almost no new supply in the construction
pipeline, Sorenson
noted. At the same time, China is ramping up to send about 100 million
leisure
tourists into the international market every year. If the U.S. gets its
typical
share, that will mean an additional 10 million visitors from China
alone. The average Chinese leisure traveler spends
a week in the
U.S., Sorenson said. That means an additional 70 million room nights in
a
market where prices are already rising due to growing domestic demand.
And that
doesn’t count growth from other inbound markets, such as Brazil and
India,
Sorenson said. “The globalization of travel is a massive force.” Business Planning 2013 What are the expectations of today’s
travelers? According to
Google, leisure travelers seek value from trusted brands and business
travelers
seek convenience. Leisure travelers turn to search engines to plan
travel
online; business travelers rely more heavily on supplier sites but all
travelers increasingly turn to mobile devices to plan and book travel.
Travelers watch a mix of user generated videos and professionally made
videos
at all stages of travel planning. Business travelers are enrolled in more
loyalty programs
than leisure travelers. Neither group uses all of the programs in which
they
are enrolled. Most leisure travelers and 70 percent of affluent
travelers begin
researching travel online, without a specific destination or mode of
travel in
mind. So who will win in these next years of
sustained hospitality
industry growth? Again, it appears that the brands are winning in that
they
went into this new era with tight contracts with the online travel
agencies (OTAs)
whereas the
independents do not have the clout from which to negotiate. According
to STR,
over 75 percent of online bookings for non-branded hotels came from the
OTAs
and less than 25 percent came from the hotels’ own websites. Your 2013 business plan and budget should
factor in the
following:
If you utilize the services of a digital
marketing firm,
they will be keeping your web site up-to-date and you will not be
incurring the
ridiculous costs that many agencies charge throughout the year. Website
re-designs are necessary…we believe the digital agency should eat that
as part
of their fees so you can budget accurately! Enhancements and technology
upgrades as well as initiatives that don’t produce direct revenue for
you, the
hotelier, are nonsense! Budgets, Values and Financial Trends When moving from your business plan to your
actual budget,
remember that while a zero-based budget is time consuming, it will save
you
tens of thousands of dollars on your bottom line. Each dollar on the
bottom
line increases the value of your asset by about $16 depending on
capitalization
rates. So a savings of $60,000 means an increase in value of about $1M! If refinancing is an option, remember that
interest rates
are unbelievably low right now and that debt is actually available! As
a matter
of fact, though it is limited, there is even some new development
activity in
the pipeline. While there is still some economic uncertainty, this
industry is
cyclical and we are already in the fourth inning of the recovery! Look
back and
remember 1996-2000 and 2004-2008. Compare them to 2012-2016. The money
is made
in the middle innings and we are there. Do remember that our industry is now more of
a science than
an art…great stewardship of your properties will reward you in the
millions
over the next few years. This will include digital marketing, social
media
marketing, revenue management, distribution channel management and
mobile web
marketing. May the wind be at your back and the occupancy, rate, net
income and
values make you happy this coming year and for many years to come! Rauch is president of R. A. Rauch & Associates, Inc and is a nationally recognized hotelier serving clients in all facets of the industry. Rauch has more than 35 years of hospitality-related management experience and his company currently manages and operates the Homewood Suites by Hilton San Diego/Del Mar, Hilton Garden Inn San Diego/Del Mar, the historic El Cordova Hotel in Coronado, and the Quality Inn & Suites Garden of the Gods in Colorado Springs. He also manages the oceanfront Pantai Inn, Southern California’s only Indonesian-inspired hotel property and Pacific View Inn, a recently acquired hotel also on the Pacific Ocean in San Diego’s Pacific Beach. Find out more about Rauch and his team, plus see how he can drive your hotel to success at www.HotelGuru.com. |
Contact:
Robert A. Rauch, CHA, President R. A. Rauch & Associates, Inc. 11025 Vista Sorrento Parkway San Diego, CA 92130 Direct: 858-523-0590 Mobile: 858-663-8998 |
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