Smith Travel Research (STR) reported today that U.S. hotel RevPAR increased a robust 9.0% industrywide last week, bringing the trailing-four-week average RevPAR increase to 8.2%. This strong growth-driven by both occupancy and rate improvement and which was even stronger at upper upscale, urban, and luxury properties-comes at a time when economic data points have called into question the near-term sustainability of the U.S. economic recovery and would appear to demonstrate that as yet no reigns have been placed on corporate travel.

Indeed, on this morning’s conference call, Host Hotels’ management indicated that they have witnessed no deterioration in demand trends during the past 30-45 days and raised expectations for the back half of 2010. The year-ago comp was an easy -17.5%, but comps will begin to get tougher in the back half of the year. To put this into perspective, the first half of 2010 had an average comp of -19.3%, while the average comp in 3Q is -17.1% and -13.2% for 2H10.

Occupancy increased 7.3% industrywide last week from year-ago levels (up 490 basis points) to 71.0%. Occupancy growth continues to be the primary driver of the positive RevPAR growth and, excluding the impact from calendar shifts, will remain positive for an extended period of time. Occupancy improved in all the chain scales and location segments, and at 24 of the top 25 markets. Average daily rates (ADR) increased 1.6% from year-ago levels and, ex-calendar shifts, we believe that ADR has reached its inflection point and should become an increasingly important contributor to RevPAR growth throughout the second half of the year and accelerating in ’11 as group rates improve and separately negotiated corporate rates shift from a headwind to a tailwind. For the week, ADR increased in 16 of the top 25 markets. On a 2009 comparable basis, demand comps get steadily harder in the second half of the year while ADR comps get easier. It will become increasingly important that the industry start to push rates a bit higher if the current level of RevPAR growth is to be sustained during 2H10. (…)

Raymond James & Associates


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