With all the data coming in from a variety of sources that measure U.S. hotel occupancy, demand, supply, average daily rate, etc., it sure does look we are in for a banner year right now—and it should continue into 2015. It’s never too early, then, to look ahead to even 2016 and beyond.
We are a cyclical industry. This happens not only because of the economy (and who knows what will happen with it), but mainly due to the change in supply and demand. When profits start looking good in our business, we start seeing developers, lenders, owners, brands, consultants, all coming out of the woodwork saying: “Let’s get into the act.”
That is pretty natural. When business is good, and there are profits to be made, the idea is to get into that business. The industry is set up nicely for the rest of the year and, likely, 2015; however, be wary as 2016 approaches—that’s when we will probably see a surge of new properties coming online throughout the country.
The recently released 12-month outlook (May 2014 – April 2015) by TravelClick reflected that for that 12-month period, committed occupancy will be up 4.9 percent over last year. ADR is projected to be up 3.4 percent, based on reservations already on the books, so it could even be greater than that.
Here is something very interesting from a sales standpoint: Transient bookings are up 5.2 percent, year over year, and ADR is up 4.8 percent. TravelClick has indicated that for the second quarter this year, transient ADR was up 4.1 percent, and even though the group segment occupancy was up 4 percent, the ADR for group was up only 0.1 percent. That tells us a great deal. What has happened to the group rate? It seems that we really have not recovered enough since we started dropping rates as a result of the last recession.
As business falls off, for a variety of reasons, sales staffers and general managers get nervous and start cutting rates. The problem with cutting group rates is that when we see a competitor cut rates, we feel we have to do the same. Instead, we should be holding rates and selling on value. We have already proven, over the years, that once we cut group rates it becomes very difficult to get back up to where we were once business turns around.
So, where are we going to be when new-build hotels start opening? This could be in 2016 and even after that. Are we going to have another 2008? What are the sales staffers doing right now to get group business on the books for 2016 and thereafter, at the rate that is needed? Now is the time to get busy going after the various group markets for those future years. Remember: We are in a seller’s market.