U.S. hotel commentary - April 2023

April 2023 Top-Line Metrics (percentage change from April 2019):
 

• Occupancy: 64.4% (-1.4%)
• Average daily rate (ADR): US$155.77 (+3.4%)
• Revenue per available room (RevPAR): US$100.39 (+1.9%)

April 2023 Bottom-Line Metrics (per available room, % change from April 2022):
 

• GOPPAR: US$90.63 (+0.4%)
• TRevPAR: US$230.77 (+6.2%)
• EBITDA PAR: US$65.20 (-3.8%)
• LPAR (Labor Costs): US$72.72 (+14.3%)

Key points
 

• Demand was down year over year for the first time since early 2021. 
• Chain scale divisions reflected strengthening corporate demand and slower leisure.
• Historical patterns point to the demand decline being more of a reset. 
• With softer demand, ADR (+3.4%) did not grow as much as inflation (+4.9%).
• Day-of-week patterns show pricing power is still strong. 
• Luxury group ADR is holding, while transient ADR is reverting to pre-pandemic trends. 
• Pipeline activity continues to stabilize. 
• While TRevPAR and GOPPAR showed growth (+6.2% and +0.4%, respectively), EBITDA PAR reflected a slight decline compared to last year, and LPAR produced double-digit growth once again.

U.S. hotel demand declined year over year for the first time since February 2021, which if you recall, was the last month with a pre-pandemic comparable the prior year. Specifically, April 2023 demand was down 1.2% from last year, leaving occupancy at 64.4%.

Softened demand held rate growth to 3.4% YoY, which was the smallest growth rate of the post-COVID era. As a result, RevPAR ($100) rose a modest 1.9% from April 2022.

The number one question to address is why demand declined, but before getting to that, we need to contextualize the idea of a YoY decline—specifically if it’s a normal occurrence and if it indicates anything about future performance.

Since STR’s data began, there are eight incidences of demand declines outside of a downturn. In some cases, the decline was an offset as demand the prior year was exceptionally strong, and the decline year was a reset to normal trend.

In other years, demand growth in surrounding months appeared much stronger than in the decline month. This indicates impacts from natural disasters or other short-lived events that temporarily dragged on performance.

In every case, demand declined YoY for a single month. Any time in which demand declined 2+ months precipitated a downturn or was part of a longer-lived natural disaster impact (i.e. Hurricane Katrina).

Considering there were no country-moving natural disasters or events in April 2023, we can throw that out as the reason for April’s decline. However, referring to the 2019 demand index, it does look as though April 2022 was unusually strong. That would mean that this most recent decrease looks like a reset.

Month-to-month occupancy trends corroborate this theory. March and April occupancy are normally within roughly one point of each other, as they are this year. Notice that in 2021 and 2022, the jump between March and April was substantially larger than average, as post-pandemic occupancy continued to recover in non-linear leaps and bounds, which messed with the month-to-month trend.

In 2023, actual occupancy is still a few points below pre-pandemic averages, but the trend has returned. That’s in line with what we’d expect to see. A lot of the loss in occupancy relative to 2019 and prior years was a function of supply growth during and post-COVID. Demand has largely returned, but we’re still incorporating all the new rooms that opened during the downturn.

There is one final point to address in the year-on-year demand decline this month, and that’s calendar shifts. Easter and Passover are both clean year-over-year comparables. The weeks shifted, but both holidays fell entirely in April both this year and last.

We did, however, trade a Friday for a Sunday. For those newer to STR, this means that the calendar held five Fridays and four Sundays in April 2022, and four Fridays and five Sundays in April 2023. Fridays are one of the highest-demand days of the week, and Sundays are the lowest, and that will impact YOY performance. Jan Freitag covered this in detail in 2019.

However, a deep dive into daily data reveals that weekend performance affected demand more than the calendar shift.

Daily demand over Friday and Saturday declined more than 2% year over year in April, a continuation of the trend shown in March and a signal that the initial burst of revenge travel is likely ending. Sunday demand dropped relative to 2022, and Thursday demand increased <0.5%, again an indication that those long weekends/“bleisure” stays are slowing.

At the same time, weekday demand continued to grow year over year, a positive sign for corporate demand’s slow return.

Softer demand meant that while ADR increased from April 2022, it did not grow as much as inflation (4.9%), meaning that real ADR declined.

In terms of trends, April ADR fell relative to March, which – outside of 2021-2022 – is expected. The decline was slightly more than normal, with April 2023 rates 2% below March, while the post-Global Financial Crisis average is closer to -0.5%. Overall, we would again see this as a reset from the out-of-trend recovery reported in 2022.

And while rates didn’t grow in line with inflation, they did improve across all days of the week, which indicates the pricing power is still strong.

Markets

The April demand decline had an outsized impact on markets outside the Top 25, but that’s largely a function of demand recovery to date.

The Top 25 markets increased demand just 0.8% YoY, leaving them indexed at about 4% below April 2019 demand levels.

Other market demand declined 2.3% YoY but held demand at pre-pandemic level.

The Top 25’s 0.8% demand growth couldn’t keep pace with 1.0% supply growth, and overall occupancy dropped in April. A lot of the markets reporting growth – Minneapolis, Chicago, D.C., and NYC – had slower Aprils last year, and so that strong YoY growth is the result of an easy comp more than super strong demand this year.

Even rate fell in a handful of markets. Of the five markets, New Orleans, Miami, Las Vegas, and Phoenix all reported April 2022 ADR 30%+ higher than in 2019, so the decline isn’t wildly out of line, as all except New Orleans are still 20%+ ahead of pre-pandemic levels.

Monthly P&L

Total labor costs were at the same level as GOP, which was 13% higher than 2019 (total U.S. estimates).

Year over year, TRevPAR and GOPPAR were both up, but EBITDA PAR showed a slight decline. Nominal TRevPAR surpassed previous peaks for the second month in a row, but real TRevPAR was even further behind the peak than last month. Nominal and real GOPPAR fell short of the previous peak.

LPAR reflected double-digit growth yet again.

Profit margins, while still strong, are slightly lower than last year due to higher operating expenses, especially labor. Labor margins are 2.5 percentage points higher than last year for full-service hotels, while limited-service hotels are less than 1pp higher.

Latest Weekly Insights

Weekly U.S. hotel occupancy (66.8%) exceeded the matched week last year by a slim margin of 0.4 percentage points (ppts) with an expected dip week over week (-0.7ppts) ahead of the Memorial Day holiday. While generally unchanged for the week, there were changes by day of week pointing to stronger mid-week occupancy and softer weekend occupancy compared to last year. Read more here.