Economy, Inflation Pressure Hotel Sector
Slower economic expansion and inflation will likely pressure hotel margins and revenue per available room this year and next, reported S&P Global Ratings, New York.
The lodging sector is in its 10th year of growth, but a global recession could shock the industry, and the growth of “nontraditional” lodging such as AirBnB could worsen a downturn, S&P Global Ratings said in its report, Could A 2019 Slowdown In U.S. Lodging Turn Into A 2020 Downturn?
“We think the likeliest catalysts would be a stalling economy coupled with a drop in hotel demand causing occupancy to slide,” said S&P Global Ratings Analyst Emile Courtney. “Even though our current base case forecast is for modest and decelerating RevPAR growth through 2020, we think the slowdown this year heightens the risk of a downturn in RevPAR beginning sometime in 2020.”
Courtney said the impact of slowing 2019 RevPAR on hotel managers and franchisers will be much less than on hotel owners, which bear the burden of hotel costs. Other uncertainties facing the hotel industry include higher wages for hotel workers, cost inflation, geopolitical risks that could affect travel and cyber-attacks, S&P said.
Despite these pressures, the hotel industry reported positive results in all three key performance metrics during January, said STR, Hendersonville, Tenn.
Compared with January 2018 occupancy rose 0.7 percent to 54.8 percent, average daily room rates increased 0.8 percent to $124.39 and revenue per available room rose 1.5 percent to $68.13.
“The good news is that the industry once again set a demand record with more room nights sold than any other January on record,” STR Senior Vice President of Lodging Insights Jan Freitag said, pointing to a 2.7 percent year-over-year increase in room nights sold. “The bad news is that overall performance growth was again muted, specifically on the rate side, where we saw the lowest increase in ADR since July 2010.”
Freitag said STR’s projections for the year remain the same. “Good, not great performance, thanks in large part to tepid ADR growth,” he said.
The lodging sector has now posted year-over-year RevPAR growth in 106 of the past 107 months, closing in on the sector’s longest expansion cycle in recent history, which lasted 112 months from December 1991 through March 2001.
