Research shows that as seasons change, ADRs don’t
 
Research shows that as seasons change, ADRs don’t
12 MARCH 2018 8:22 AM

An analysis of U.S. hotel industry room demand alongside average daily rate shows little correlation between the two. 

HENDERSONVILLE, Tennessee—With a lens focused on identifying seasonal patterns in the key performance indicators, STR reviewed three years—2015 to 2017—of U.S. performance data.

(STR is parent company of Hotel News Now.)

We found that on a national basis, U.S. room demand—along with its related occupancy indicator—follows a distinct seasonal pattern with clear high and low months. Average daily rate, on the other hand, showed remarkably little movement across months.

In an industry that thrives on understanding and anticipating long-term trends, seasonality is an often-neglected factor that has major implications within the hotel sector. In particular, local players, who are tasked with making marketing decisions along with planning appropriate pricing and room availability, can benefit from a deeper understanding of seasonal performance trends.

Room demand
Room demand is highly seasonal. The chart below demonstrates monthly changes in U.S. demand, compared to the three-year average. July clearly tops all other months (+16% above the yearly average). June and August also coincide with a “high season,” with both months drawing 10% more demand than the monthly average. The July peak averaged over 35 million more rooms than the slowest months of December and January. January just trails December for the lowest total room demand (-17% below yearly average). February also shows a decline of 14% from average yearly demand.

The “heat bar” at the bottom of chart provides a quick visual cue to the strength of seasonal differences. Red indicates “hot” or high seasons with larger demand when compared to the annual average while blue indicates “cold” or lower indexed performance periods with lower demand than the annual average.

ADR seasonality
The key takeaway from U.S. hotels’ monthly changes in ADR is simple: monthly ADR changes are essentially nonexistent across the year. With U.S. ADR averaging $125 over three years (inflation adjusted to EOY 2017), only January demonstrates a notable—though still very modest—discount ($119, 5% below indexed) from other months. On aggregate, ADR does not show any major month-to-month or seasonal shifts.

A poor relationship between US room demand and ADR
Monthly indices for room demand, overlaid with ADR indices in the chart below, seem to show a very weak relationship between monthly room demand and monthly ADR in in the past three years.

Some theories to explain the relationship between monthly demand fluctuations and flat pricing:

  • It’s possible that discounted or non-premium priced ADRs are actually driving up peak demand. In other words, because rates remain reasonable, more travelers might be on the road than would be otherwise.
  • Leisure family travel reaches its peak in the summer months, and July in particular, and this might be more price-sensitive than business traveler bookings during the spring and fall.
  • The U.S. hotel industry, in aggregate, still has excess room capacity despite repeated record-setting performance in recent years. At least on an individual market basis, we commonly observe that an area will reach some critical threshold in occupancy (i.e. compression) before ADRs rise. Without compression, there is not a lot of incentive on the individual hotelier to take a more aggressive ADR maximization approach at the risk of driving down demand.
  • Hoteliers may seasonally discount rooms to raise occupancy with the added anticipation that more visitors equate to increased non-room related revenue opportunities.

In summary, STR’s analysis indicates that seasonal demand changes do not correlate with ADR changes for the country overall. A deeper analysis at the region or market level could quite possibly reveal a different story. A future analysis on seasonality will take a deeper look at monthly KPI patterns within key North American markets.

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.

3 Comments

  • eric student MBA HOTEL BUISSNESS IN PARIS March 14, 2018 5:42 AM Reply

    What about New York

  • Manuel March 15, 2018 6:20 AM Reply

    I think the chart should be separated into city and resort destinations. Working in a resort destination in Thailand, our ADR's are up to triple in high season compare to shoulder and low season.

  • M. Brian Riley March 19, 2018 9:57 AM Reply

    Thanks for you Q, Eric. While the article focuses on the national relationship between room demand and ADR, a future write-up will demonstrate that there are seasonal performance trends to individual markets.

    The most seasonally dynamic performance indicator for NYC was ADR. For the 2015-2017 period, September was the peak month with an indexed ADR +26% above the yearly average, followed by October (+20%). Given the market is very near full Occupancy level for these months, these same months’ room demand respectively averaged only +5% and +8% above the market’s yearly average.

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