STR Weekly Insights: 5-11 May 2024

Analysis by Isaac Collazo, Chris Klauda, Will Anns

Countries/markets mentioned:

• United States: Daytona Beach, Las Vegas, Minneapolis, and San Francisco
• Global: China, France, Germany, Japan, and Spain

Highlights
 

• Strong U.S. weekly RevPAR growth via weekdays in upper tier hotels.
• Weekday group demand at record high post pandemic.
• Global recovery waning, as expected.

U.S. RevPAR rebounded, but the outlook remains troublesome

After a fortnight of weak performance, U.S. hotels rebounded via strong group and midweek demand, especially across the Top 25 Markets. Revenue per available room (RevPAR) increased 6.6% year over year (YoY) as average daily rate (ADR) rose 4.4% and occupancy increased 1.3 percentage points (ppts).

Excluding the first quarter of 2023 when YoY comparables were low, RevPAR has only grown above 6% in eight of the past 62 weeks. The highest RevPAR growth over that period was seen a few weeks ago during the total solar eclipse.

Two notable RevPAR markets for the most recent week were Daytona Beach (+98.6%), which hosted the annual Welcome to Rockville music festival, and San Francisco (+86.3%), with the RSA (cybersecurity) Conference. Both events took place on different weeks last year, which boosted the comparisons.

While economic conditions are squeezing lower-to-middle income households, as evidenced by rising credit card balances and increased delinquencies, the American Automobile Association (AAA) is forecasting Memorial Day travel to be the second highest in its history. Ordinarily, this would increase our optimism. However, we are mindful of continuing demand decreases in the lower chain scales and expect that the industry will remain bifurcated in the weeks ahead, including in the summer season.

As a case in point, room demand rose significantly for the week ending 11 May, but 73% of the growth came in the upper-tier chain scales (Luxury, Upper Upscale & Upscale). That aligns with previous weeks. For the year, the upper tier has seen room demand grow more than 4.3 million room nights, while the remaining chain scales lost 6.2 million room nights. This trend is expected to continue for the foreseeable future for the reasons stated above.

For the first 18 weeks of the year, ADR rose 2.1% YoY. Most recently, ADR growth surpassed 4%, led by Luxury and Upper Upscale hotels. Upscale chain scales neared the same level, while the remaining segments were below the rate of inflation. With growing demand and ADR, Luxury and Upper Upscale hotels reported combined YoY RevPAR growth of 11% as compared to 5% for the combined performance of Upscale/Upper Midscale and 0.2% for Midscale/Economy. For the year, using weekly results, RevPAR has grown at an average of 3.2% in Luxury/Upper Upscale but fallen by 3.8% in Midscale/Economy. Upscale/Midscale weekly YTD RevPAR has been basically flat (+0.4%).

Top 25 Markets achieve post-pandemic weekday occupancy high

Room demand and RevPAR have grown in the Top 25 Markets in most weeks of this year (~65%). In the most recent week, the Top 25 Markets accounted for 84% of the room demand gain seen across the industry. As a result, RevPAR in the Top 25 Markets grew 11.5% with ADR increasing by 6% and occupancy advancing 3.7ppts. Weekdays (Monday-Wednesday) drove the week with RevPAR up 20.3%. More significantly, weekday occupancy in these markets reached 78.4%, the highest weekday occupancy since the first week of November 2019. Back in 2019, this week’s weekday occupancy was 81.8%.

RevPAR on shoulder days (Sunday & Thursday) increased a healthy 10.6%, whereas the weekend (Friday-Saturday) remained weak (-1.1%). The rest of the country saw modest weekly RevPAR gains of 2.5% with the strongest performance on weekdays (+3.4%), followed by shoulder days (+2.9%) and weekends (+1.2%).   

Luxury hotels produced the strongest Top 25 Market RevPAR growth (+13.6%) with performance comparisons across the rest of the chain scales positive at lowering levels: Upper Upscale (+12.2%), Upscale (+9.4%), Upper Midscale (+8.8%), Midscale (+5.1%) and Economy (+0.3%). RevPAR among the chain scales in the Top 25 Markets was also lifted by weekday performance. Luxury weekday RevPAR increased 22.7% with the growth rate cascading down the chain scales with the lowest gain in Economy (+4.5%). Across the rest of the country, chain scale performance followed a similar albeit significantly lower pace with RevPAR comparisons ranging from +5.7% for Luxury chains to -2.9% for Economy chains.

Super charged group demand

Group demand in Luxury and Upper Upscale hotels soared for the week, increasing 10.8% YoY, with most of the growth coming on weekdays with demand was up 15%. Weekday group demand was the highest since 2020 and the second highest since 2019. Group ADR increased 7.3% YoY with weekdays and weekends showing similar increases. Seventeen of the Top 25 Markets saw positive group occupancy changes with San Francisco (+16.7%), Las Vegas (+13.7%), Minneapolis (+9.2%) and Orlando (+8.7%) taking the top spots.    

Global results showing signs of a waning recovery

Occupancy across the globe fell, marking the fifth decrease since the end of the pandemic—all in 2024. This suggest that like in the U.S., the industry’s recovery, when measured by occupancy, is nearing its end. Occupancy was down in several key countries including China, Germany, and Japan. RevPAR in China and Germany was down by more than 22%. The decrease in China was a result of the calendar shift for the Labour Day national holiday that spans five days. Germany also had a similar shift.

In France, a YoY ADR gain of 20.3% drove a 22.7% RevPAR increase, the highest among all the large hotel countries. Taylor Swift’s opening nights in Europe drove Paris ADR up 19.1% YoY, while occupancy marginally increased 1.3ppts.

Spain was closely behind France with a YoY RevPAR gain of 21.5% as ADR grew 14.1%. Madrid posted its fifth highest ADR ever (US$219, +16.1%). Barcelona also saw strong ADR gains (+12.8%).

Looking Ahead

Forward STAR data suggest that occupancy comparisons in the top markets will be flat on average over the next 90 as there are an equal number of days where occupancy is above and below 2023 levels. Shifting conference and concert calendars are driving some of the movement.

Taylor Swift’s Eras Tour was a boom for hoteliers last spring and summer, and she will be sorely missed this year as comps will suffer. The calendar for the rest of the year is an exact match to 2019 with Memorial Day, 4th of July and Labor Day all matching on both the day of week and date. This will provide some clarity in advance into the expected performance for those weeks and the weeks surrounding the holidays. We will continue to monitor performance across the U.S. chain scales, the Top 25 Markets and day-of-week travel as we see divergent trends. AAA’s Memorial Day forecast is promising, air travel is on the increase based on TSA screenings, and weekday demand impacted by conferences and business travel was strong in the most recent week. At the same time, we can’t dismiss the travel headwinds that have taken the form of inflation, high interest rates, and rising debt.

Outside of the U.S., the industry continues to be strong. However, what is happening in the U.S. may serve as a precursor to what will happen in other countries down the road.