Markets with a more diverse demand base seem to be more resilient to demand and ADR shocks as a result of terrorist attacks than markets that are reliant on transient and tour leisure demand.
HENDERSONVILLE, Tennessee—Acts of terrorism have spread devastation in markets around the globe and have disrupted the hotel industry in many countries.
After these events, STR is often called upon by reporters to provide perspective on how consumer demand for hotels has been affected and how room demand has changed. Sadly, the impact of terror is often long-lasting and deeply felt. (STR is the parent company of Hotel News Now.)
For this article we examined hotel demand and room-rate performance after terrorism in six markets around the world.
The chart below shows the annualized room demand for the market and compares it to the month before the event, then charts the room-demand performance for the following 24 months after the attack.
A few things can be observed. First, there is no ‘normal’ in situations like this, and all demand curves behave differently. It seems to be a pattern, though, that markets that more heavily rely on transient leisure travelers are more severely affected in the short term.
After the London and Orlando attacks, room demand in those markets did not decline and the hotel industry there was not severely affected. It probably speaks to a more diverse customer base and the ability of the local tourism industry to draw from a variety of sources.
Demand in Sharm El Sheik never recovered. This demand drop shows the dramatic impact of terror on a market that is solely focused on leisure demand.
Paris room demand stayed somewhat steady in the summer after the attack—months seven through nine—but was affected the following year—months 16 and on. It stands to reason that leisure travelers did not cancel their already booked summer trips in 2015 but when it came time to book summer vacation in 2016, Paris was shunned as a leisure destination.
New York City room demand took a while to recover after the 9/11 attacks. In fact it took 31 months, until March 2004, until annualized room demand surpassed the August 2001 number.
Istanbul room demand, while severely affected in the first year, is slowly recovering to pre-attack levels. If the current trend holds, the market will likely see positive growth in less than two years after the bombings.
The following chart shows the annualized ADR in local currency for the market and compares it to the month before the event, then charts the ADR performance for the following 24 months after the attack.
Just as in the demand chart, there is no clear pattern that can be construed. In some markets, hoteliers seem to be able to retain pricing power, whereas in at least two markets ADR was severely curtailed.
Orlando and London, in addition to not showing any demand declines, also did not witness pricing deterioration. Their ADR curves seem to reflect a regular pricing increase in step with inflation and the macroeconomic environment. Two years after the bombings, London ADR was 12.3% higher than in the month prior. So far, Orlando ADR is up 4.4% since May 2016.
Despite sharp demand declines, Sharm El Sheik hoteliers were able to increase room rates (in local currency) by more than 65% since September 2015. It is worth pointing out, however, that the inflation rate in Egypt was around 10% in 2016 and around 30% in each month of 2017. In U.S. dollars, the ADR dropped from $67 (annualized) in September 2015 to $52 (annualized) in August 2017 or by 21%.
The prolonged room-demand decline in Paris this summer had some impact on ADRs and room rates have declined 3.3% when compared to December 2014.
Hoteliers in New York City and Istanbul observed room-rate deterioration in the double digits. Two years after the attacks, New York City ADR was still down 18%. In Istanbul, 20 months after the bombings, room rates were still depressed by around 18%, although the data was worse in the past.
In general, the global tourism industry in thriving and emerging middle classes around the globe are exploring new countries and markets like never before. But when looking at the aftermath of terror attacks, it is clear that a single attack can devastate the local hotel market not only in the moment but for years to come. Markets with a more diverse demand base seem to be more resilient to demand and ADR shocks than markets purely focused on transient and tour leisure demand. Total safety is never possible, so unfortunately it is likely that we will continue to see attacks that affect cities and the hotels in those markets in the future.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.