The economy and gas prices are affecting hotel demand, but are they affecting room rates yet? For every 10 percent increase in gas prices, there is a correlating 0.5 percent decline in hotel demand, said Bjorn Hanson, a hospitality and leisure researcher for PricewaterhouseCoopers, at the 30th annual New York University International Hospitality Industry Investment Conference, held last week in New York.
But the decrease in demand is not expected to slow room rate growth any time soon, said Mark V. Lomanno, president of Smith Travel Research, Hendersonville, Tenn., in a separate session. He pointed out that despite the reduced availability of credit, and given the economic environment, the fact that hotel room rates have not declined is encouraging for the hotel industry.
Lomanno said he doesn’t expect negative growth in--revenue per available room--the industry metric that examines room revenue in a hotel property divided by the number of rooms available. For the first five months of this year, RevPAR was at 2.6 percent in the U.S. The ADR, or average daily rate, another hotel industry measure that looks at room revenue in a property divided by the number of rooms occupied, was up 5.4 percent at the end of May, Smith reports. RevPAR was up 4.6 percent at the end of May.
Still another piece of good news for the hotel industry is that while supply is growing, it is growing at the “low end of historical norms,” Lomanno said. At the end of April, hotel supply was up 2.2 percent. Overall, Smith Travel forecasts supply growth of 2.4 percent by 2009 and demand growth of only 1.3 percent. RevPAR is likely to drop to 2.8 percent by 2009, after growing to 3 percent in 2008. “The industry will still be extremely profitable but will not necessarily generate enough RevPAR growth to cover the increased cost of doing business,” Lomanno said.
Weekday occupancy is providing more revenue for hotels—a new trend, he said. At the end of April, weekday business accounted for more than $24 billion in hotel revenue, up from more than $23 billion for the same period of 2007.