Hotel brand and REIT executives discussed how lower transient demand affected their companies’ performance in the third quarter.
REPORT FROM THE U.S.—The pace of U.S. hotel revenue-per-available-room growth continued to slow in the third quarter.
Some hotel companies lowered their guidance following the quarter while promoting steady net unit growth. The real estate investment trusts have turned their focus to capital improvement projects in this slow growth period.
But what’s driving the Q3 softness? Hotel executives pointed to lower transient demand, which they expect to continue in the quarters to come.
Chris Nassetta, president and CEO, Hilton
“Business transient was up a tick and leisure transient was down a tick, recognizing part of the leisure-transient thing, a small part of it, it was weaker. I’m not trying to candy coat that because there was also a leisure-transient comp that was more difficult this year over last year.”
“(Business transient) was positive but anemic. … I think it just had to do with broader weakness. We did see just a little bit of color. If you look at business transient and you break it down by segments, small business, medium and big businesses, we saw more impact in larger business, which we have a theory on that. They’re sort of more tied in, most of them are public, they’re more tied in real time to what’s going on in the marketplace and maybe reacting to the uncertainty that is out there a little bit more rapidly than small or medium businesses.”
Mark Hoplamazian, president and CEO, Hyatt Hotels Corporation
“As the group and transient performance in the U.S., our group rooms revenue was roughly flat in the U.S. and transient rooms revenue was up approximately 1%. Corporate group room revenue continued to hold up well with an 8% increase over 2018 levels and cancellations have remained at modest levels for our corporate group business. Total group production was a bit soft in the quarter with near-term bookings down more significantly, the same dynamic we've seen throughout the year. Group pace for 2020 is up over 3% and we have secured more than 70% of the business on the books.”
Arne Sorenson, president and CEO, Marriott International
“Global systemwide constant dollar RevPAR rose 1.5% in the third quarter year over year. For North America alone, RevPAR increased 1.3%. RevPAR growth exceeded our expectations in D.C., Houston and Hawaii on strong citywide and transient demand.
“For group business in North America, comparable hotel RevPAR rose 2%. Group cancellations remained modest and attendance at group meetings (was) strong. Transient RevPAR was up slightly year over year, reflecting steady corporate demand and stronger demand from leisure travelers.”
“It would be far too soon to suggest that implies that leisure transient is meaningfully weaker than business transient. Obviously, we're going to see the way the year actually evolves but we're also going to see the way the completion of our budget season evolves. And again—but behind that average of 0% to 2%, you're going to see some markets that are lower than that 0% and some markets that are higher than the 2% based upon market dynamics, which may have something to do with convention centers or group booking pace for that individual market or the strength of the sort of local drivers of those economies as opposed to some other economies. So I would—while group I think will be among the strongest segments for us—I don't think it means that the others are necessarily going to be down.”
Jon Bortz, chairman, president and CEO, Pebblebrook Hotel Trust
“Overall for the quarter, transient revenue—which made up about 77% of our total portfolio of room revenues—declined 2.9%, compared to the prior year. Transient ADR declined by 1.5% in the quarter.
“The rate of demand growth continued to modestly slow from the second quarter in both business and leisure transient, and September was particularly disappointing, given the benefits that were expected from the Jewish holidays shift into October.”
Jim Risoleo, president and CEO, Host Hotels & Resorts
“Growth in leisure more than offset the continued weakness in business transient, which reflects greater business cautiousness. The continued uncertainty of a long-term U.S.-China trade deal, domestic political turbulence and decelerating global economic conditions are impacting business investment. Full-year expectations for U.S. non-residential fixed investment have declined by 140 basis points since the beginning of the year and currently stand at 2.7%, which would represent the slowest pace of business investment growth since 2016.
“As discussed last quarter, we anticipated much of the revenue-led softness that the lodging industry experienced in the third quarter. As our expectations for business transient revenues have moderated further due to continuing macro uncertainties, we have revised our outlook for full-year comparable constant-dollar RevPAR growth to range between down 25 basis points to down 1%.”
Tom Baltimore, chairman, president and CEO, Park Hotels & Resorts
“Candidly, it's businesses being more cautious (and) more careful. Business confidence has certainly been softened. And clearly business investment … is probably a bigger issue here as it involves, not only an impact there in San Francisco, but another key urban markets as well.”
“Well, if you look at third quarter, obviously (overall transient was) down 4.8%. And those were comparable, having (leisure) down 4.4% … and business down 4.9%. As we think now in that 3%, I'd say more weighted towards the business transient what we're seeing right now in the fourth quarter.”
Jonathan Halkyard, president and CEO, Extended Stay America
“The third quarter saw a continuation of the softness that the industry began experiencing in June. And in fact, the decline accelerated in September, even after adjusting for holiday shifts. Comparable systemwide RevPAR growth during the third quarter for ESA declined 1.3%, including a 2.7% decline during the month of September.
“Now after adjusting for unusual items in the third quarter, such as cycling hurricane business in Houston and Florida and renovation disruption, RevPAR during the third quarter declined 0.5% for ESA. We remain focused on driving demand from our core extended-stay guests, business travelers with stays ranging from a week to a couple of months, which we believe is a bit more consistent than transient business and for whom we have a clear value proposition. It was because of these efforts that we achieved a record occupancy for the company this quarter, and the strength of our 30-plus-day length of stay customers will help us as we go into the shoulder season.”
Mark Brugger, president, CEO and director, DiamondRock Hospitality Company
“Business transient did look good in the third quarter, but I would say that's less about business transient being good and mix shift. We had a good group quarter. We were able to fill a fair amount of available rooms with group leaving less rooms to sell for business transients, which meant we were able to put in higher quality business treatments, so we were able to wash out the lower rate of business transient, put in some higher rated.
“We still think it makes sense to group up in a defensive posture given the moderation in business transient demand. A lot of your success or failure in group and your ability to execute on that strategy depends on the strength of your particular market. So in Boston and Chicago, we have good citywides, it's going into 2020. ...
“So it looks like based on our pace and our ability to execute on it, we're having success and continue to have success on that front. The group pace at the Boston Westin is up something like 40% for next year and I think we're up almost 25% in Chicago Marriott. So I think a lot of people will pursue the strategy because it makes sense in light of the weakness in business transient. But so far we continue to have success despite competition for those groups.”
Disclaimer: Hotel News Now is a division of STR, a CoStar Group company. Chris Nassetta serves on the CoStar Group’s board of directors.