Freitag’s 5: US hotels close out March like a lion
Freitag’s 5: US hotels close out March like a lion
30 APRIL 2018 8:17 AM

Despite messy calendar shifts in March, U.S. hotels continued a performance hot streak, but a cooldown could be around the corner. 

HENDERSONVILLE, Tennessee—As I have said before, the current up-cycle for the U.S. hotel industry is a little bit like a 2-year-old on a sugar high, in that it will likely come crashing down when the hurricane comps come in in the fall.

But, for the time being, March continued the revenue-per-available-room growth streak and closed out a very strong first quarter.

That was the case despite the calendar being a mess—not only because of the number of weekends, but because of the Easter shift. March 2018 had one more Saturday than March 2017, which helped since we traded it for a Wednesday. But more importantly, Good Friday and the first day of Passover were in March this year, but last year took place in April. This should have affected performance negatively since group meeting planners stayed away from the Easter week—occupancy for the week ending 31 April decreased 2.8%. But actually, the weekly performance was not as terrible, with RevPAR growing 0.7%. Easter Sunday was 1 April, which had a negative impact on April, but the full Easter effect comp should lift April, so it’s going to be an interesting month to watch.

1. RevPAR growth
March RevPAR increased by a very healthy 3.9%, which marks the 97th month of consecutive RevPAR growth. This was driven primarily by average-daily-rate growth of 3%. I have said before—over and over—that past ADR increases have been disappointing given the high level of absolute occupancy. And now it turns out revenue managers actually did what we thought they would do all along: increase room rates above the level of inflation. So, they probably feel pretty good about themselves. ADR growth was the strongest it has been since January 2017. Possibly, it’s an outlier; let’s see what the summer holds. Because demand increased 2.9%—well above the supply growth of 2%—occupancy growth was positive (+0.9%), so that gave an extra boost to the RevPAR growth.

2. Impact of hurricane markets
It is probably safe to assume that part of the Florida numbers was actually “real demand.” Some of the Florida markets had a very strong Q1 and a strong March especially, so it is possible that some of the hurricane demand has already burnt off and was substituted with leisure demand. April will be an interesting case study to see if we can discern whether the hurricane impact is waning.

3. Transient and group performance
Transient RevPAR increased 6.1%, driven by occupancy growth of 3.3%. I would chalk this up to leisure demand over Easter and probably some spring break demand. Also related to Easter, group RevPAR declined 2.6% because occupancy for the segment was down 4.9%. So, just to rub it in, let me state it this way: Group occupancy change now has been negative for nine of the last 10 months (and 10 of the last 12). But April should be better.

Here is how the Easter comp affected last year and this year so far:

Of course, to say that April 2018 has no Easter impact is not quite true, since Easter Sunday fell on 1 April, but you get the point. The impact would have been leading up to Easter, not after the fact.

It’s quite fascinating to see that the group occupancy decline was a lot more muted this year than last. Let’s see what that means for the group occupancy increase coming up.

4. Pipeline
I love it when I call a trend a trend, and it turns out to be a trend. The number of rooms in construction was down 2.4%, meaning it has now declined five of the past six months. And what is noteworthy is that the number has now declined sequentially, from February to March as well, by 3.5%.

I think this is the single most important issue that will prolong this cycle, because it speaks to lender discipline and a more mature behavior of developers. Of course, there are still some markets where they did not get the memo. Looking at you, Nashville, Tennessee.

5. Quarterly trajectory
First-quarter RevPAR increased 3.5%, the same as in Q1 2017, and below Q4 2017 growth (+4.5%). Obviously, you can see in the chart below the quarterly data trajectory in 2017 (i.e. downward), which was then positively interrupted in Q4. This will come back to haunt us in the fourth quarter of 2018, when the comp will be quite rough.

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. 

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