Report: Pricing power expected to slow for U.S. hotels in 2020

Technology-focused areas, such a San Francisco, are still winners for ADR growth. Photo credit: Pixabay/David Mark

After experiencing sharp increases in 2019, prices for the global travel industry are expected to slow in 2020, according to the 2020 "Global Travel Forecast" from the Global Business Travel Association and Carlson Wagonlit Travel.

Worldwide, hotel prices are expected to increase 1.3 percent in 2020, according to the report. And while the global economy is doing well overall, and expected to grow 3.6 percent in 2020, uncertainties will put a damper on pricing. In North America, hotel prices are projected to grow 2.3 percent in 2020, while they will increase 2.2 percent in the United States.

“The risks and ambiguity have increased over the past few months—not least the threat of escalating trade wars … possible oil supply shocks, and the growing likelihood of recession,” said Kurt Ekert, president and CEO of CWT.

In the United States, where the economy is thriving, tariffs and trade wars are still taking their tolls. Gross domestic product, while set to increase, is anticipated to slow to 2.1 percent growth in 2019, researchers noted. In 2020 and 2021, that growth will slow to 2 percent and 1.8 percent, respectively.

In addition, the hotel industry has experienced slow but steady growth in average daily rate, according to the report. Due to the number of new hotels built in the U.S., though, the industry will see ADR grow at closer to 2 percent year over year rather than the 3 percent growth seen in the recent past.

This gradual slowing will help rates return to normal, correcting the high prices seen in some of the major cities, the report added. Technology-focused areas—such as Seattle and the California cities of San Francisco and San Jose—are still winners for growth. However, demand in these cities has been high for so long that prices have increased too much. That means business travelers are staying in locations farther out as a response. Researchers noted that this situation is similar to what happened in New York City about eight years ago when ADR growth remained flat and then saw declines.

Related Story: Room rates set to increase for several key U.S. cities

Hoteliers Look for Opportunities

The report pointed out an opportunity for hoteliers, however, with the slowdown paving the way for more aggressive negotiations. Hoteliers can expand their current offerings to find the “sweet spot” between cost efficiencies and guest experience, according to the researchers. That experience is a much more important aspect to millennials, a group that will comprise nearly 50 percent of the American workforce by 2020 and 75 percent of the global workforce by 2025.

Meanwhile, the report noted that business travelers fall into two categories: traditional, older guests who are more brand loyal and prefer chains; and a younger workforce that often blends business and leisure and prefers boutique accommodations that double as hang-out and co-working spaces. In response, hotels chains are adding options to woo these travelers.

Hoteliers also are looking for other ways to make money, including via ancillary spend. Hoteliers are trying to make their lobbies more attractive to work, thus keeping business travelers on-site and more likely to spend money in places such as the hotel restaurant. Additionally, the report noted that hotels are taking advantage of cancellation policy fees, with many chains now charging these fees as far as 72 hours in advance rather than the previous industry standard of 24 hours.

Related Story: American travelers shift priorities