May Hotel Performance Indicates Rising Demand

Demand from business travelers this month is driving the lodging industry recovery and shows no sign of letting up through August, when buyers compile 2006 bids and hotels begin to firm up pricing strategy for that year. According to data released yesterday by Smith Travel Research, revenue per available room for U.S. hotels grew 6.8 percent and 6.4 percent in the first two weeks of May, respectively, compared to the same weeks in 2004. Average daily rate in the week ending May 14 rose 7.3 percent, year over year.

Meanwhile, RevPAR for upper upscale hotels, frequently booked by business travelers, grew 9 percent. Growth also was strongest for downtown hotels, where business travelers typically stay.

May is shaping up as a great month for the hotel industry as a result of business travel, said UBS analyst Will Truelove. "May results are important because there's a significant amount of business travel," Truelove said. "This May also represents difficult comparisons with May 2004, when RevPAR gains were strong as well."

Advance hotel bookings show strength through the summer. "Our proprietary data suggest stronger RevPAR trends are to come," said JP Morgan Chase analyst Harry Curtis. "Conversations with key lodging owners indicate they are not experiencing soft forward bookings."

Adding pressure on supply, PricewaterhouseCoopers yesterday forecast that leisure travel this summer will be strong, with occupancy from Memorial Day through Labor Day expected to increase 4.7 percent over the same period in 2004 and 6.2 percent over 2000, the industry's last banner year.