Most expectations are that the U.S. hotel industry won’t be back to pre-recession levels until 2013. Adjusted with inflation, it could be even longer.
GLOBAL REPORT—The hotel industry’s performance metrics will continue to grow at a slow and steady pace throughout the remainder of this year and into next, but according to forecasts and forward bookings, a full recovery to pre-recession levels won’t occur anytime soon.
“We’ll still be continuing to grow but, in general, have we reached the pre-recession levels? No,” said Julie Parodi, senior director of strategic planning and analysis for Pegasus Solutions and editor of The Pegasus View. “That’s why we still use the word ‘recovery.’
“We’re making progress but the recovery is still in process.”
Parodi said full recovery won’t occur in 2012, either. Most expectations, she said, are that the U.S. hotel industry won’t be back to pre-recession levels until 2013.
Jan Freitag, senior VP of global development for STR (the parent company of HotelNewsNow.com), said if the metrics are adjusted for inflation it could be even longer. Specifically, he said the 12-month moving average for U.S. average daily rate was US$107.72 at its peak in September 2008. In October 2011 it was US$101.13.
“You can argue that US$107 versus US$101 is just a US$6 difference,” Freitag said. “But adjusted with inflation you suddenly have to make up US$7 or US$8. It’s at least 24 months away before we do that, and probably longer.”
The other metrics are a bit more complicated to calculate. Occupancy in the U.S., for example, was 63.5% at its peak in 2006 and in October 2011 was at 59.8%. But getting back to 63.5% might not be the right goal to shoot for, Freitag said, because the amount of supply added to the landscape has skewed what would be a common denominator.
Instead, Freitag suggested the industry aim to sell more rooms today than it did in 2008—a goal it has already accomplished. The industry sold 40 million more rooms from January to October 2011 than it did from January to October 2008, although there are 100 million more rooms available today than there were at this time three years ago.
“Going back to pre-recession occupancy levels might not be the right goal,” Freitag said. “The right questions might be: ‘Can we sell more rooms?’ And ‘Can we make more revenue?’”
Measuring revenue, the U.S. hotel industry grossed US$109 billion from January to September 2008 and US$106 billion through the same time frame in 2011. “Even though we’re selling more rooms, we’ve made US$3 billion less,” Freitag said. “That’s purely a function of rate.”
Freitag said if you were to take the amount of rooms sold in 2011 and multiply it by the peak ADR in 2008 the industry would’ve netted US$4 billion more so far this year.
Potholes in recovery
Globally, Parodi said the growth pace can vary depending on soft patches, whether those be political or economical. “Because the pace can vary, people are not expecting to be back in 2011,” she said. “We should be progressing and getting closer to those levels but we don’t expect to be fully back in 2012.”
Pegasus uses electronic bookings to garner forward-looking data for both the global distribution systems, which Parodi said is most indicative of corporate travel, and ADS, which she said is most indicative of leisure travel. Bookings and rate growth in the GDS sector looks to continue growing over prior year into the first quarter of 2012, with potentially softer growth during January and February offset by a possible uptick in ADR growth, Parodi said. Forward-looking data for the ADS sector shows leisure travel will remain resilient through the first quarter of 2012, with bookings and rates ahead of prior year at least until February.
Parodi said there is no single pre-recession date the industry should examine because certain regions felt a delayed reaction to the global financial crisis.
Freitag said growth of the three key metrics—occupancy, ADR and revenue per available room—will appear to slow over the next year, but in reality growth will remain relatively steady but simply will have tougher year-over-year comparisons.
“It’s just math,” he said. “The room rate growth for next year is 3.9%. Is that good or bad? It’s fine. Could it be more? Last year was more and this year was more, but we were coming off a lower base. Now we’re getting to numbers that are more equilibrium.”
Freitag said the 20-year long-term industry averages show demand growth of nearly 2% and rate growth of nearly 3%. STR forecasts for 2012 include a 0.2% increase in occupancy to 60%, a 3.7% jump in ADR to US$105.29 and a 3.9% rise in RevPAR to US$63.18.
“The growth rates we’re expecting in 2012 and 2013 are not as strong as we’ve seen in 2009 and 2010,” Freitag said. “Those numbers are not sustainable … although they’re nice to see every once in a while.
“What we find striking,” Freitag continued, “is that year-to-date demand growth is still very positive at 5%. No one really expected that because we’re now in the second year of seeing that. I would’ve expected that number to slow. It will slow in 2012, but it sure has been a good ride.”