Freitag’s 5: RevPAR starts to soften in May
Freitag’s 5: RevPAR starts to soften in May
25 JUNE 2015 6:43 AM
The U.S. hotel industry still is setting records, but its RevPAR failed to hit the 6% growth threshold for the first time this year.
The U.S. hotel industry kept on rolling during May. But with new records comes some softening in certain metrics.
1. Get ready for more records
Occupancy ended the month at 67.5%, the highest tally ever recorded during May, while demand broke an unprecedented 104 million roomnights, according to data from STR. Annualized occupancy, meanwhile, is still at 65%, which means all key performance indicators are again at new record levels on an annual basis. 
2. RevPAR just missed the 6% mark
With a 5.9% increase in May, revenue per available room missed the 6% mark for the first time this year. But keep in mind that last year RevPAR growth was 9.7%, which was the strongest May RevPAR growth ever. Given that tough comp, a 5.9% gain is certainly a healthy number. 
Looked at different way, the two-year sum of RevPAR growth for the first five months of this year have been healthy or very healthy, and May is no exception.

But that said, RevPAR growth is decelerating. Look at numbers this year so far:

So just as it is with any data point, there are two ways to interpret this:
  • 2015 will be a slow, gradual “soft landing” for RevPAR growth.
  • Never mind, May is a hiccup. Full steam ahead!
RevPAR growth in 2014 between June and December was more than 7% (except November) and more than 9% for four of those months, so it will be interesting to see if we can maintain the 7.2% pace that we have reported year-to-date. Our full-year 2015 forecast stands at 6.6%, so a slight bit of slowing is expected.
3. Second month to hit 5% ADR growth
Average daily rate drove RevPAR again. May was the second month this year the U.S. hotel industry hit 5% growth.

I would expect this trend to continue as occupancies remain healthy and hoteliers realize their pricing power.
4. Add one more month to the RevPAR growth chart
RevPAR now has increased for 63 consecutive months (or five-plus years) with no end in sight. 
5. Supply slowing catching up with demand
Demand in May was 1.9 million roomnights higher than last year, and supply was 1.6 million roomnights higher. As you can see, the growth in rooms sold and rooms available is inching closer and eventually the two shall meet. In other words, the industry soon will be adding as many new rooms as it sells, with the resultant impact of zero occupancy growth. 
The question is, when that happens, what happens to pricing power? I looked at past months when occupancy declined and ADR increased at the same time.

This has happened before during the 1990s, when we had two periods (24 and 42 months) with healthy ADR growth and declining occupancies. Hopefully it can happen again. But that was before the online travel agencies and the ever-present threat of pricing transparency and downward pricing pressure. 
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