NASHVILLE, Tennessee — U.S. hotel industry metrics are in parallel with their pre-financial crisis numbers in 2008. That, according to Kelsey Fenerty, manager of analytics for STR, and Isaac Collazo, vice president of analytics for STR, should make hoteliers very happy considering the economic landscape and that the market has rebounded from its worst crash imaginable.
“Normalization is the key word for this year’s conference,” Fenerty said at the final keynote presentation, titled “What’s Next? Key Trends, Talking Points and Takeaways,” at the 2023 Hotel Data Conference, hosted by Hotel News Now and STR, CoStar’s hospitality analytics division.
“A phrase we can also take from the numbers is that ‘everything will be fine,’” Collazo said.
He said rumors of a U.S. recession have been greatly exaggerated, although both guests and C-suite executives seem to lack a little confidence, at least for the short term.
“Every time I have looked at monthly commentary on the likelihood of a recession, [it] has been pushed back a little more and lessened in impact,” he said.
As is perhaps always the case, there will be challenges, concerns and checks and balances, but with U.S. wealth increasing, inflation low — much lower than other G7 countries — and more discernible income being spent on travel, hoteliers should be smiling, the analysts said.
“Demand is higher now than it was, 42% higher than it was 15 years ago. Travel is truly ingrained in the public,” Collazo said.
Fenerty said the checks and balances to that confidence are that “it is getting more expensive to travel, it takes more income to travel, but we are starting to see decelerating [average daily] rate now,” she said.
A lot of American travel spending power is being directed at Europe, the analysts said, and spread across the year far more than it was.
Fenerty added that these trends have caused U.S. weekend demand to start struggling this year.
Inbound demand to the U.S. is not yet making up the balance, she said.
“Americans are traveling abroad again, but international travelers to the U.S. are missing in action, waiting on airlift or, for China, for their borders to open and for their economy to improve,” she said.
Collazo said in the U.S., the top 25 markets have regained demand share after dropping off a cliff during both the initial opening from lockdown and in the initial post-pandemic recovery.
He said the top 25 markets’ share of demand averaged 38.4% for the first two quarters of 2023, while in 2022 it represented 37.2% of demand. Pre-pandemic, in 2019, those markets accounted for 39.3% of overall demand, so the metric has almost rebounded.
Another potential demand sector for “normalization” is the return of group travel, “especially smaller groups,” Fenerty said.
She said corporate bookings have continued to improve weekday occupancies to just a little below all weekend occupancies, fueled by those smaller events and meetings booking less than 10,000 square feet.
Pesky Economics
Fenerty and Collazo said the industry is cognizant of the frothy macroeconomic conditions of the past 18 months or so, although the U.S. economy rode out most of the bumps better than other major economies.
“With any inflation, there is a softness we must be aware of, even if there is still growth,” Collazo said.
“The industry is not about luxury being up and everything else being down. [U.S. performance] might have been helped by international as they had their downturn last year while we forgot to have one,” Fenerty said.
In June 2023, 35% of U.S. submarkets posted year-over-year revenue per available room declines, she said.
She added that “trend will move into the top 25 markets.”
Fenerty and Collazo said when, or if, that number reaches 42% is when alarm bells should ring.
“The second quarter 2023 has been challenging, but we’re hanging in there,” Fenerty said.
Pushing back against such industry concerns is that a larger share of incomes are being spent on hotels and travel, they said, even if there has been some shift in segmentation and there are signs that U.S. guests have started to exhaust excess savings.
“For budget hotels, we have seen 20% more year-on-year in spend on weekend nights, with a 4% demand drop,” Fenerty said. She added that demand growth for rentals is outpacing hotels, with hotels actually showing negative year-over-year performance for the second quarter of 2023.
Collazo said that 43% of U.S. travel spending derives from those with household incomes of more than $150,000, but the number of U.S. households earning more than $100,000 is predicted to grow.
“Instead of buying a couch, we’re going to Paris,” Fenerty said, noting that the division between the haves and the have nots is increasing in the U.S., as it is in most major economies.