The spring travel season is seeing an increase in bookings, with 17 of the top 25 North American markets showing committed occupancy improvements in March over February, but a report from TravelClick is showing the pace of this growth remains relatively flat. New commitments added in March are down 0.2 percent according to TravelClick's March 2016 North American Hospitality Review, with TravelClick's senior industry analyst John Hach saying the pace of new bookings is fragmented.
However, Hach also said the pace of new group bookings is up by almost 7 percent compared to the same period in 2015, showing that hotels are facing challenges when it comes to sustaining the booking growth seen in recent years on a continued basis.
Despite this, Hach remains cautiously optimistic about growth in the group segment. "It was the last segment to come back around two years ago, and it's showing signs of the most stabilized growth over the last 6-9 months," Hach said. "We are seeing a slight contraction on the other side as we go into Q2 2016, with a reduction in transient business."
Hach rationalizes this switch from transient to group success as a result of cost justifications for corporate travel. It is now more economical for large groups to travel less frequently, with these groups meeting once every three months rather than monthly, for example.
For Hach, this switch was unexpected, and yet understood. "For most large companies, travel is the second largest controllable expense after employment," he said. "It's a very sophisticated process for them right now. I see an austerity and more of a rationalization when it comes to justifying the costs. They need meetings, but it's a give and take from the business group."
As for occupancy growth, Hach said there is more in store for the industry but it will come at the expense of the transient market. According to TravelClick's report, transient bookings are up 0.8 percent year-over-year for the next 12 months (March 2016 - February 2017), while average daily rate for the segment is up 2.4 percent. Transient leisure is expected to have occupancy gains of 2.6 percent, with ADR gains also of 2.6 percent. Meanwhile, transient business is down -1.8 percent, while ADR is up 2.9 percent. Group bookings are up 5 percent in committed roomnights over the same time last year, and ADR is up 3.4 percent.
Hach said that the business segment is seeing a slight contraction in small transient business that is picking up at the discounted transient segment, something the industry sees at the end of a recovery period when compression and competition for rates hits its peak. Hach's concern is that travelers will only pay so much for a room until they consider it too be too expensive, and the industry has been in a period of ADR driving performance for a year and a half. "When hotels push on ADR, the cost justification says that travelers won't make four trips a month. As organic growth it will just naturally scale back."
At the same time, Q1 ended with a number of macroeconomic issues ending as the airlines continue to do well due to low oil prices. Mainly, Hach said the industry needs to focus on providing localized differentiated value and investigate into more local differentiation. He also suggests specifying inclusions such as Wi-Fi and food-and-beverage options, anything to provide added value to drive conversions by any means besides rate.
"There is a lot of speculation for how long the recovery period will last," Hach said. "Unlike what happened in 2001 and 2008, the data doesn't show a precipitous fall off, just a lessening of momentum and a shift to cost-effective travel."