Are there any winners during a downturn?

Hotel performance data from 2009 shows that Transient demand in the major markets rebounds quickly as consumers take advantage of steep discounts. Luxury resort hotels see transient demand rebound quite quickly as well.

Outlined below are the percentage changes in revenue per available room (RevPAR) for all hotels in the Top 25 Markets vs. the high end of the market only—Luxury and Upper Upscale classes together also represent the sample for STR’s segmentation data.

It is quite clear that RevPAR declines steepen (to -25%) in the larger markets as the financial crisis deepened and the economy slid into recession. What is not shown in this chart is that RevPAR changes did not turn positive until January 2010 (Lux & UU) and March 2010 (total market).

With that considered, it is also easy to see from the next chart that high-end hotels (Luxury + Upper Upscale) saw a fairly rapid reemergence of Transient demand. In fact, Transient demand returned to growth just seven months after the downturn started.

Why? 

A look at the steep declines in average daily rate (ADR) may provide a partial answer to that question.  When monthly segmentation ADR discounts hit 20%-plus, some travelers may have seen a bargain and pounced on the opportunity. This was likely aided by the general news media reporting on “deals.”

It is interesting to see that Group ADR actually increased at a healthy clip through Q4. This was likely caused by group contracts that were negotiated 12 to 18 months prior and were now realized. Yes, fewer group travelers hit the road, but those who did still had to pay the pre-negotiated room rate which was “set in stone” at a slight increase compared with Q4 2007.

But then, to no surprise, the following occurred. Because revenue managers opened lower-rated channels to the public, meeting attendees (who had booked the convention/group rate) saw on the day before their trip the same room in the same hotel for a lower rate on an online channel. Those attendees likely then canceled and rebooked outside of the block. It is of course possible that this trend inflated STR’s Transient demand number on the slide above.

Who else did well?

The pattern of Transient demand recovery can also be observed in hotels that STR classifies as “luxury class, resort location”—in other words, high-end hotels in traditional vacation destinations.

It is of course possible that the rebound in Transient demand for the high-end resorts was also spurred by the sharp discounts in room rate as we reported. Transient ADR declined as far down as -25%.

Conclusions

• Sharp room-rate discounts seemed to have incentivized behavior among Transient travelers
• Transient demand recovers much more quickly
• Discounts may not entice new travelers but simply allow the same customer to find a discount at the same hotel.
• Transient demand seems more resilient. 
• Group demand takes many more quarters to recover.