U.S. hotel commentary - February 2023

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

• Occupancy: 60.0% (-2.8%)
• Average daily rate (ADR): US$152.01 (+17.7%)
• Revenue per available room (RevPAR): US$91.22 (+14.3%)

Key points

• ADR increases over the last eight months are the highest levels of growth STR has ever benchmarked (excluding pandemic recovery months).
• Occupancy levels are reverting to historical norms.
• Group’s rapid recovery is underpinned by lower ADRs – both actual and growth level – relative to transient, suggesting a cost-efficient option for companies prioritizing group travel over transient.
• Top 25 Market occupancy recovery continues to be leisure weekend-driven, as hotel costs in combination with rising airfare makes travel increasingly expensive for budget-conscious companies.
• The number of rooms in construction increased year over year for the third consecutive month, suggesting that the U.S. has entered a new supply growth cycle with previously deferred projects moving forward.

U.S. occupancy increased 5.8% year over year (YoY) to 60%. That level was only 1.8 percentage points (ppts) below the 2019 comparable. Average daily rate (ADR) held on to double-digit growth YoY, increasing 10.3% to $152.01. That put the ADR index to 2019 at 118, which is on the higher – but still normal – end of the spectrum for index trends.

ADR growth continues to outpace occupancy growth YoY, and ADR has paced well ahead of occupancy in the 2019 index. The recovery indices have shown that pricing recovered faster than demand, with rates reaching pre-pandemic levels as early as July 2021. However, the past eight months of clean comps – meaning ADR for a certain time and the prior year comparable were each fully recovered to pre-pandemic levels – are still the highest-growth months in STR’s history, excluding COVID-recovery months.

The light blue on the left of the chart is COVID recovery, meaning that growth levels were high but actual ADR had not yet reached pre-pandemic levels. Those can be disregarded. The medium blue bars in the middle are more important because they mean that post-recovery rate growth has remained at record-setting levels. The historic dark blue closest to the recent months show growth but not exactly “clean comps” given some impact from Hurricane Katrina.

While ADR growth is the first major point for February, the second relates to occupancy, because the same type of chart for that metric looks wildly different. The calendar will be one of the biggest considerations in understanding hotel performance data this year. As we move further out from 2019, the big swings in index around holidays are going to become more common and pronounced.

Segmentation

Weekday transient occupancy has been stubbornly stuck at ~90% of pre-pandemic levels for about one year.

There are some outliers – notably Q3 2022 conference season looked good, while December 2022 and January 2023 were influenced with difficult 2019 comparables. In general, however, this segment has consistently lagged others in recovery.

Recall that at 63.3%, rolling 12-month occupancy is about 2-4% below pre-pandemic levels, even as weekday occupancy (total) is 6-7% below 2019 and weekday transient occupancy is 10% down.

The math is not exactly adding up here, meaning that even as business travel has been slower to recover, demand has come back stronger in other segments (e.g., leisure, group).

Recovery has slowed since the highs of conference season, and the wonky 2019 comp is hitting groups harder than probably any other segment. It is recommended to hold off on YoY growth for groups for at least a few more months because February 2023 group demand is “only” up 40% YoY but that is still difficult to use. Week-over-week demand comparisons to 2012 reveal that groups are mostly moving in line with expectations. Overall demand might be below what is ideal, but there is no major fallout the way the index might suggest.

Top 25 Markets

While the accommodation spend is one major component of any trip, there is one other major cost associated with travel, and that is transportation. It is safe to assume most business travelers are flying, and inflation has not missed the airlines.

Unsurprisingly, the cost to fly out of major origin cities – these are the Top 25 Markets plus Newark – has grown over the past few years. The more surprising part of this chart might be how little it has increased: Only 13 markets are reporting airfare growth more than 10% ahead of pre-pandemic level.

The chart above – origin city airfare vs. origin city ADR – is underselling the cost of Top 25 Market travel unless you are bouncing between Top 25 cities. Either way, a one-night stay in a Top 25 Markets during conference with round trip airfare ran between $400-$700.

In other words, the high cost of travel is weighing heavily on the return of business transient.

Top 25 weekends are performing well, while weekdays continue to struggle. The shoulder days – the blended travel, the work-from-anywhere – may be the most interesting story to watch this year if weekdays do not gather more post-spring break steam.

Pipeline

The growth of rooms in construction has officially ticked up YoY indicating that we are once again in a supply-growth cycle. February was the third consecutive month of not just YoY growth but continued acceleration in YoY growth.

Monthly P&L 

U.S. hotel gross operating profit per available room (GOPPAR) exceeded the pre-pandemic comparable and was the highest since October 2022. EBITDA was the only key bottom-line metric on a per-available-room basis to come in lower than February 2019.

• GOPPAR: US$77.37 (+1.6%)
• TRevPAR: US$217.20 (+3.7%)
• EBITDA PAR: US$51.63 (-0.6%)
• LPAR (Labor Costs): US$73.70 (+2.9%)

An increase in top-line group demand is beginning to show in the bottom line, as catering & banquet revenues are inching closer to 2019 levels and meeting space rentals and services charges surpassed that threshold. On a per-operating-room basis, nearly all F&B revenues outpaced the pre-pandemic comparables. Read more here. 

Latest Weekly Insights

Coming off a strong week that aligned with the apex of Spring Break travel, the U.S. hotel industry throttled down during the week ending 25 March 2023. Performance indicators fell week over week (WoW), but some volatility is normal and in line with previous years given the current season. Based on historical patterns, we expect the next surge in performance to occur in the week leading into Easter Sunday as family/vacation-oriented travel gains steam. Read more here.