Making the Most of the Recovery

Making the Most of the Recovery

Signs show the hospitality industry started a welcome recovery in 2010, and travel money is returning. Seizing opportunities will ensure you capitalize on the recovery, and the following guide will help.

A Look Back at 2010

In 2010, the US hotel industry finally showed signs of economic recovery. Occupancy rates, ADR (Average Daily Rates), and RevPAR (Revenue Per Available Room) all increased in 2010. In fact, the 7.1% occupancy rate increase in the fourth-quarter of 2010 was the largest quarterly increase ever recorded.

Business travel drove this growth. As corporate profits returned, so did the business traveler. Meetings cancelled in previous years returned in 2010, driving even more to hit the road. These travelers were met by lower room rates as hotels slashed their prices to weather the recession, adding to travel’s appeal.

Occupancy rates were driven higher by a lack of new rooms on the market. Construction of new hotels slowed drastically during the economic downturn, with only a 2% increase in room supply during 2010, resulting in a record rise in occupancy.

The Recovery Continues

A number of signs point to continued recovery in 2011. NOI (Net Operating Income) is forecast to rise 11.1% in 2011, and more than 15% in 2012 and 2013. Meetings are expected to increase more than 8%, and demand for rooms increase more than 7.8%.

Hotel analysts see occupancy rates as a leading indicator. As occupancy rates grow, rate increases will follow, as will ADR and RevPAR. Some analysts (Colliers International PKF Hospitality Research) see a 3.3% increase in occupancy demand, leading to a 6.3% increase in hotel RevPAR. According to PKF-HR, room rates won’t fully return until 2012, leading to RevPAR increases of 10.4% in 2012 and 10% in 2013. These would represent the first time national RevPAR grew more than 10% since STR began tracking the statistic.

Finding an Advantage

Obviously, there is profit and opportunity to be found as the hospitality industry continues to recover. Here are a few tips to help you gain an advantage:

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[li]Focus on marketing: Make your hotel a destination as travel increases. Develop a marketing campaign that targets specific events, seasons, or travelers. Invest in your website, as this will be the first impression many travelers have of your hotel. If you haven’t already, start using social media to build your hotel brand. [/li]
[li]Build now to profit later: With room rates expected to increase, potential customers looking to travel will be searching for hotels with added value. A new hotel could be that value, especially when there are few new rooms competing for attention. Some hotels are already employing this strategy. According to a recent survey, in 2011 61% of hotels plan interior renovations, and 42% plan exterior renovations. Start your building project now to capitalize as RevPAR peaks. [/li]
[li]Benefit from business: Business travel and meetings led the recovery in 2010. Low room rates lured many events to major markets, but as room rates increase, secondary markets will become more appealing to event planners. Make sure your offerings appeal to the business traveler in 2011. [/li]
[li]Look at Extended Stay: The RevPAR for extended-stay hotels in the U.S. increased 10.3% in the fourth quarter of 2010. The extended-stay room supply growth is at its lowest level in more than 15 years, and is expected to decline even further. All this adds up to healthy increases to RevPAR for extended-stay hotels in the foreseeable future.[/li]



Maximize Your Position

After the economic difficulties of the last few years, signs of recovery are welcome relief. Rather than focusing on survival, start looking to improve and maximize your position in the market. There is a light at the end of the tunnel, for those hotels willing to work to reach it.