NASHVILLE, Tennessee — Economic recessions aren't just defined by a decline in performance, but also unpredictability, STR senior consultant Hannah Smith said.
Speaking during a session titled "Measuring recovery through volatility" during the recent 14th annual Hotel Data Conference, Smith said downturns and recoveries tend to bring more volatility to the surface. Past downturns, such as the Great Recession, can offer lessons for this current one.
Smith compared the COVID-19 downturn recovery against the period after 2008. Data from STR, CoStar's hospitality analytics firm, shows that during the first two years of recovery from the Great Recession, there was no spike in volatility.
"Where we see it bump up is actually when the industry started to recover in 2010," she said. "The point at which the volatility [in terms of occupancy] jumps up is right when the industry is at its lowest point of the downturn. It means that, yes, the Great Recession was bad for the industry, but it was at least predictably bad."
The opposite is true for the COVID-19 pandemic, during which the industry "bottomed out," instead of experiencing an incremental decline, Smith said.
The first year of the pandemic was the most volatile period of time, she said. However, the recovery was stable. Although the industry was slowing down this past winter, especially amid the omicron variant, it was a steady decline.
"That steadiness, that predictability allows you as operators to make changes a little faster, [such as with] staffing changes, in a way that a volatile environment doesn't allow you the chance to react," she said.
Comparing Average Daily Rate Volatility
During the Great Recession, increases in ADR volatility didn't appear until the industry started to recover. Smith said some of that came from hotels slashing rates after 2008.
"Hotels were really paying attention to what their competitors were doing and were reacting more quickly, and that shows up as volatility," she added.
Again, it's an opposite trend when looking at average daily rate through the recovery from COVID-19. The first year of the pandemic was highly volatile, then stabilized.
"But in the last six months or so, we've seen an uptick in that volatility again. I think that speaks to the inflationary environment, where we are able to quickly raise rates in reaction to our rising costs. Again, that quick adjustment in rate is what's showing up as volatility," she said.
Volatility in Urban Markets
Smith said recovery in urban markets across the U.S. isn't just about "how quickly it's coming back, but how stable is it."
The uptick in occupancy volatility across urban markets is expected to continue in the coming years as the industry works to bring group demand back, she said.
However, that occupancy stability doesn't always mean stability with ADR, Smith said. Two market examples include Colorado and Miami.
"These are markets that tend to be among the most stable of all markets across the U.S. in terms of occupancy, but among the most volatile in terms of ADR," she said. "To me, what that says is the amount of demand that these markets have week to week is very stable."
Colorado and Miami are looking at what the pricing power is every week as well as the demand, she said. This results in week-to-week fluctuations with ADR.