The U.S. hotel industry’s ongoing run of monthly RevPAR increases and its recent record occupancy levels are obscuring a more unsettling trend, one that many hotel groups will be unable to overcome quickly when the hot streak ends and a downturn finally comes to lodging.
Robust occupancy, especially in the major destination markets, does not fit with the slowdown in RevPAR growth and anemic ADR growth in the industry. Something is going wrong with hotels’ pricing power, and hospitality companies are blaming several things, from increasing supply outpacing demand, to difficulties with online travel agencies and the effects of Airbnb.
Those are all legitimate challenges, but there’s a larger issue at play. Hoteliers should be looking inward to solve their problems. There is no excuse not to be yielding rates more aggressively with occupancy continuing to climb beyond already record levels.
Take the disparity between transient and group ADR growth. According to STR data presented to the Industry Real Estate Financing Advisory Council this year, monthly growth in transient ADR has lagged behind group ADR since January 2016.
Transient rates are within revenue managers’ control, yet the industry has not managed to push these prices much higher than 1 percent to 2 percent per month for the past year and a half while demand continued to grow. Meanwhile, hotel sales teams have managed to grow group rates consistently at about 3-percent year-over-year increases each month.
In many markets and chain scales, hotels haven’t been able to price the way one would anticipate. STR noted that all industry segments achieved occupancy above 65 percent in June, including levels above 80 percent for upscale and upper upscale. Yet those two chain scales had the lowest RevPAR increases for the month, at 1.4 percent and 1.2 percent, respectively, compared with a year earlier.
The effect is more pronounced for some of the biggest U.S. destinations. Despite an occupancy of 90.6 percent in June, the New York City market recorded a 3.7 percent decrease in ADR for the month.
