What hoteliers should watch for in the broader economy
What hoteliers should watch for in the broader economy
08 SEPTEMBER 2017 7:33 AM

Hoteliers must keep an eye on governmental policy changes and shifting relationships between hotel performance indicators and larger economic indicators.

NASHVILLE, Tennessee—The hotel industry doesn’t exist in a vacuum, so experts who spoke at the Hotel Data Conference last month said there are several things hoteliers should keep an eye on to gauge the larger economy’s trajectory and how it might affect their hotels.

During the “Cause and effect: How the broader economy influences hotel performance” session, presenters said hoteliers need to keep an eye on things like discussions around major governmental policy changes, how “traditional economic indicators” may be losing influence over hotel industry key performance indicators and several other things worth keeping an eye on.

Policy changes vs. rhetoric
Aran Ryan, director of lodging analytics for Tourism Economics, said not much has changed since the election of President Donald Trump to move most of his promised policy changes closer to reality.

“There are these opportunities that are visible with this administration that we could have things that could positively impact the economy in the short run, but then those are also balanced by things that are potential risks for growth,” he said. “And stuff could happen that may be on either side (of being either good or bad) that are somewhat unexpected.”

Among the potential positives are the possibility of tax cuts, infrastructure spending and a decrease in regulation. Possible negatives include things like general uncertainty about the government’s future plans, anti-immigrant attitudes and policies and trade protectionism.

Chad Church, VP of client services at Hotel News Now’s parent company STR, said deregulation could ultimately free up more corporate money that could find its way to hotels.

“The folks who wouldn’t have invested before will invest now,” he said. “We’re taking some of these limitations off of industries that have been in maybe a wait-and-see approach for multiple years at this point.”

But Jess Petitt, VP of global business analytics for Hilton, said hoteliers need to be careful not to make assumptions on how that money will be used.

“Businesses could just keep those profits,” he said. “We certainly see more of that now.”

Ryan noted it’s difficult right now to truly gauge the economic impact of the current administration, especially when looked at from a stock market perspective, which he said many people point to as an indicator of a president’s economic success or failure. He added that people need to be careful not to read too much into U.S. markets hitting record highs.

“We’re sort of in this period where it’s global equity markets that are appreciating,” he said. “So, if you look at the U.S. stock market relative to some of these global measures, you see basically the same performance.”

At the time of the presentation, U.S. markets were up 20% since Trump’s election. For the same time period, global markets, excluding the U.S., were also up 20%.

Things on the horizon
Speakers pointed out several things that affect hotels that people should keep in mind. Among those are performance of group demand, the relationship between inflation and rate growth, how airline performance affects hotel demand, how different U.S. markets are experiencing different rates of gross-domestic-product growth and where things are in the global development cycle.

Petitt noted the consistent decreases in group mix since 2010 have been a negative for hotels.

“It has a real impact on (food and beverage),” he noted.

He said it’s important for hoteliers to reckon with the “new normal” now as opposed to hoping for a comeback in a downturn.

“It won’t be where it was in the past,” he said. “There’s only so much group to go around, and we can’t expect it to be there in the next few years when you need it.”

Decoupling of indicators
Speakers noted that the current cycle has shown a divergence of hotel performance indicators from larger economic metrics that had moved in concert during previous cycles. That includes things like GDP.

Ryan said their relationship has changed but demand and GDP haven’t completely separated.

“When you look at room demand relative to GDP over a 10-year period, it’s not like they’re totally untethered,” he said.

Petitt noted issues with specific industries, most notably oil and gas, complicate the metrics and “created a measure of noise that shrunk the relationship.”

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