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Critical Quarter

Lodging Industry Looks To Rebound From Disappointing First Three Months Of 2019

Tuesday, May 14, 2019
Dennis Nessler
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With Memorial Day weekend a little more than a week away, it’s not too soon to start looking to toward the critical summer season while evaluating the first quarter of 2019. The year began with generally cautious optimism and forecasts of RevPAR growth in the neighborhood of close to 3 percent and most ‘experts’ believing the prolonged industry upcycle would continue, albeit at a slower pace than recent years.

However, the year hasn’t exactly gotten off to a stellar start. A number of owner/operators I’ve talked to have acknowledged a general softening in the overall market and are planning accordingly for the remainder of the year. That sentiment has clearly been reflected in the numbers for the first three months.

According to STR, overall U.S. RevPAR was up only 1.5 percent year-to-date through March, while occupancy ticked up a paltry 0.4 percent. That level of RevPAR growth, in particular, is a far cry from the nearly 3 percent that was expected and it was the lowest for a Q1 since 2010. In addition, a number of major brands, such as Hilton and Marriott, have also reported a drop-off in domestic RevPAR growth in their quarterly earnings reports.

The slowing rate of growth is no doubt cause for concern for hoteliers, particularly in light of continually rising operating costs. After all, at the end of the day profitability is the metric that matters the most and that could be compromised for many hoteliers if things continue on this path.

But before we start playing taps and declaring the official ‘end of the cycle’ and bracing for a full-on recession, let’s pump the brakes a little. From a fundamentals standpoint, things still look pretty benign. For example, demand is still outpacing supply through March with growth at 2.4 percent and 2.0 percent, respectively.

Perhaps just as importantly, the U.S. economy is still humming with consumer confidence high and unemployment low. The stock markets have rallied with both the S&P 500 and Nasdaq closing at record highs earlier this month.

Furthermore, there have been indications that interest rates are not likely to be raised again for the remainder of the year. Following the most recent rate hike, there were concerns that the Fed could raise rates as many as three times in 2019. In fact, there has been some speculation that there actually could be a cut in interest rates later this year, which is probably not a great sign on a macro level but we’ll worry about that later. This would be significant because the threat of interest rate increases generally stalls transaction activity for the lodging industry and reduce investor confidence.

But interest rates notwithstanding, April results when they come out will signal a key month for the industry on the heels of a disappointing March. During the month, overall U.S. RevPAR and ADR was up 0.6 percent, while occupancy was flat.

Beyond picking up the pace in April, the all-important summer months are on the horizon when leisure travel generally spikes, particularly when it comes to drive-to destinations. Of course, one major concern right now with regards to consumer’s traveling is gas prices, which have risen dramatically throughout the country within the past two weeks. Many markets have seen prices rise as much as 15 cents per gallon and this could obviously curtain consumer travel during the summer.

Many have predicted the end of the cycle for the last several years and sooner or later they’re going to be right. And some have suggested the ‘downturn’ is already underway and we’ve been in the midst of it for the better part of a year. That may be true, but I think we would all agree if that’s the case it could be a lot worse.
Dennis Nessler    Dennis Nessler
Hotel Interactive®, Inc.
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