Analysts Forecast Higher Hotel Use
Final U.S. hotel occupancy rates for 2003 are expected to be 59.3 percent, only slightly higher than the 59.1 percent recorded in 2002, according to projections last month by PricewaterhouseCoopers, based on data collected by Smith Travel Research. For 2004, occupancies are projected to rise to 61.2 percent due to the strengthening economy. These levels, however, still are below the 63.3 percent achieved in the banner year of 2000.
PwC's modest projections for 2003, followed by more robust growth in 2004, are consistent with the view of financial analysts and other industry consultants. While such predictions offer hope to hoteliers, who have suffered through a steep, two-and-a-half year downturn, buyers likely will continue to wield considerable negotiating leverage in such an environment.
Similarly, revenue per available room suffered in 2003 as a result of the faltering economy, and is expected to rise only 0.3 percent from 2002. Here too the picture improves for 2004: Bjorn Hanson, who heads PwC's hospitality and leisure practice, expects RevPAR to grow a healthy 5.2 percent. Paul Keung, lodging analyst at CIBC World Markets, is even more optimistic, expecting RevPAR growth this year of up to 6 percent. As with occupancy rates, however, the brighter 2004 RevPAR outlook still falls short of 2000, when RevPAR grew 6.3 percent.
Given RevPAR performance, average daily rate is expected to decrease slightly by 0.1 percent in 2003, but then grow by 1.9 percent in 2004. However, Hanson said that on closer analysis the rise in ADR for 2004 actually was not as positive a development for hotels as it might appear since inflation this year is expected to rise 1.4 percent.
Regarding lodging industry tiers, "Declines in occupancy and average daily rate through the recession have been greater for full-service than limited service hotels, so we expect full-service properties to bounce back more quickly in 2004 as the economy rebounds," said Robert Mandelbaum, director of research for the Hospitality Research Group of PKF Consulting. Midprice hotels' full recovery is not expected until 2005 or 2006.
Keung attributed his optimistic RevPAR projection to strengthening corporate demand, which will result in "rising prices as occupancy improves." The one negative Keung noted is that Internet distribution channels, including third-party merchant model sites, are expected to experience further growth this year, "taking some wind out of the industry's sails."
Michael Rietbrock, Keung's counterpart at Citigroup Smith Barney, agreed that demand should continue to improve at a steady pace.
"One leading indicator is that group bookings at upscale resorts, which need to be booked in advance to accommodate groups, were strong during the fourth quarter," he said. "Lodging demand typically lags the broader economy by approximately six months."
Looking to 2005, analysts continue to be somewhat upbeat. According to Hanson, growth in RevPAR is likely to subside, while growth in ADR increases significantly. Occupancy levels are expected to rise as well, but incrementally.