Guests to stay in control of hotel industry until at least 2012

by Tom Johansmeyer on

The light at the end of the tunnel is always cause for hope. When market conditions are at their worst, the promise of a recovery keeps morale from plummeting and gives a reason to keep pushing forward. For the hotel industry, however, there’s nothing but darkness for the next year. The latest research from PhoCusWright paints a pretty dismal picture, evident immediately from the title of its most recent announcement: “Why Hotels Are Not Recovering Any Time Soon.” But, it could just as easily have been called, “Why Travelers Can Get Dirt-Cheap Rooms in 2010 and Probably 2011.”

Ouch.

If you’re looking for a culprit, start with those two traditional factors — supply and demand.

Demand is off substantially. Conditions right now are worse than they were in the dismal 1990/1991 season and during the post-9/11 recession. Last year, demand fell between 5.5 percent and 6 percent. This is far worse than the 2 percent decline posted in 2002 and the 1 percent drop in 1991. This year, PhoCusWright expects demand to inch higher by 1 percent to 1.5 percent, but this is relative to the severely depressed baseline of 2009. So, we’ll likely reflect at this time in 2011 on a slow recovery that still has some road in front of it.
Fortunately, a 5 percent increase in demand is expected in 2011, followed by a few years of growth in the range of 3 percent to 4 percent. This means that we’ll get back to 2007 levels by the end of 2011 and start to see net hotel market growth in 2012.

Part of the problem that the hotels face is an increase in supply. So, while demand is down, the industry has more beds that need heads in them. The ill-timed increase in demand is the result of projects that began before the financial crisis and subsequent recession. Nobody saw the credit market collapse coming, let alone the downstream effects, as evidenced by the 3 percent increase in supply last year. From 2011 to 2013, supply growth will slow down, though, as bone-dry credit markets and general financial malaise have led many development projects to stall. In fact, PhoCusWright expects hotel supply falls next year and the two years after.

The increase in supply and decrease in demand has put incredible pressure on occupancy. In 2006, hotels were able to put 63 percent of their room-nights to work, but last year, that fell to 55 percent. PhoCusWright expects the increase in demand and decrease in supply over the next few years to support an industry-wide recovery to 60 percent occupancy by 2012. At this level, hotels can usually pick up some pricing power, which translates to an improvement in rates.

In 2009, hotel room rates were of course impacted by the disparity between supply and demand, not to mention the general squeeze on consumer spending. But, these factors weren’t exclusively responsible for the 9 percent drop in rates last year. The hotels themselves bear part of the blame, according to PhoCusWright’s study. In an effort to fill rooms, they engaged each other in a “race to the bottom,” in which they tried to undercut each other for market share at any price.

Given the anemic growth in demand expected in 2010, expect room rates to continue to fall until 2011. The return to pre-recession levels will take a while, particularly given the economic conditions that will be with us this year. The result is another year of depressed revenues for the hotel industry. Last year, revenue per available room-night (RevPAR), the primary metric by which the hotel industry is judged, plunged 17 percent last year and will continue to slide in 2010. PhoCusWright expects the bleeding to stop in 2011, with 2012 RevPAR reaching only 90 percent to 95 percent of the peak levels sustained in 2007.

So, what does all this mean? A full recovery is likely four years away for occupancy and room rates. In 2011, the situation will stop worsening, and it will pick up in 2012, but it’s two years past then than you’ll see the hotels regain their strength. Until then, it’s the consumers’ show. Travel often. Slap a few more nights onto each of your stays. You’re in the driver’s seat.

[Photo via MigrantBlogger]

Foreign visits to the U.S. show signs of life

by Tom Johansmeyer on

Travel to the United States finally grew in October! After six months of declines, thanks to an Easter bump in April, foreign visitation finally ticked higher, an increase of 1 percent year-over-year, according to data from the U.S. Department of Commerce. If you take the holiday factor out of the equation, the last year-over-year increase came in August 2008. It’s difficult to tell whether the October gain signals a turn, since the 2009 result was measured against the first month following the financial mayhem of September 2008.

Four million people visited the United States from abroad last October and spent $10.3 billion in the process. Unlike the visitation statistic, spending was down … considerably. The cash shelled out by international visitors was off 13 percent year over year. But, the declines are shrinking. For the first 10 months of 2009, visitor spending amounted to $100.9 billion, a decline of 16 percent from the same period in 2008.

Thirteen of the top 20 countries in terms of visitation to the United States posted increases in October — six of them in double digits. Brazil, Australia, China, South Korea, Venezuela and Colombia delivered the greatest gains.The news was mixed from our neighbors. Visits from Canada fell 1 percent from October 2008 to October 2009, which is still an improvement over the year-to-date decline of 7 percent. Mexico, meanwhile, showed a 2 percent increase in October and a 5 percent decline for the year. Slightly more than half of the 4 million visitors to the United States came from overseas — i.e., not Canada or Mexico — an increase of 1 percent year-over-year. Through October, 19.8 million people crossed water to hit the United States, an 8 percent drop from the first 10 months of 2008.

Visits from Western Europe were down 5 percent for October and 11 percent for the year, while Asia posted a 2 percent gain and a year-to-date decline of 11 percent. The greatest gains were in the South American market: visitation to the United States was up 22 percent for October and 6 percent for the first 10 months of 2009.

[Photo by hjl via Flickr]

Tourism industry in The Gambia gutted by global recession

by Sean McLachlan on

We all know the global recession has hit the tourism industry pretty hard, but smaller countries off the beaten path are feeling it worse, and are less able to bounce back.

The Gambia is the smallest nation on the African mainland and has a modest tourism industry based around its beautiful beaches, serene river, and two UNESCO World Heritage Sites, including the mysterious stone circles pictured here. Unfortunately, Mr. Alieu Secka, president of the nation’s Hoteliers Association, says there’s been a 50% drop in arrivals for the 2009/2010 season. A quick check of several leading hotels revealed the figure to be more or less accurate.

Ouch.

The Gambia is not a rich nation, and such a plunge in the industry will threaten jobs and businesses, creating a knock-on effect as families have to support the newly jobless.

Is The Gambia the proverbial canary in the coalmine? Will other small nations get hit this hard?

Hopefully I’ll be going to The Gambia in 2010. My wife, who is very supportive of her wandering husband, gave me a flight there as a Christmas present, so assuming I don’t trade it in for a flight somewhere else to visit my friend as he motorcycles across Africa, I’ll be able to give a firsthand report. Perhaps I’ll bring along some extra money to spend. The Gambians deserve it.

In case you’re wondering, I got her an espresso machine. She didn’t want to go to The Gambia with me so I guess she’ll just sip espresso at home and read my blog posts.

Foreign visitor spending in U.S. gets ugly

by Tom Johansmeyer on


The U.S. Department of Commerce tells us that spending in the United States by foreign visitors fell 13 percent to $10.3 billion for the month of October – off $1.6 billion from October 2008. For the entire year, international visitor spending plunged 16 percent. Spending fell $18.6 billion. The good news is that the October decline is better than the year-to-date drop, which the international travel market may be on its way back.

Visitors to the United States spent $8 billion in October on goods and services related to tourism and travel, off 12 percent year-over-year. This money was spent on “food, lodging, recreation, gifts, entertainment, local transportation in the United States, and other items incidental to foreign travel,” according to a Commerce Department statement.

Passenger fare receipts – including air and other forms of international travel to the United States – fell close to 16 percent to $2.2 billion for the month of October. This is off more than $420 million compared to October 2008. October was the twelfth month in a row in which travel and tourism exports declined year-over-year.From January to October this year, foreign visitors dropped $100.9 billion getting to and hanging out in the United States. But, they 16 percent by which they trimmed their spending is not without similarity on our side of the equation. U.S. travel imports – i.e., those of us visiting other countries – reached a mere $81.6 billion, off around 13 percent ($12.1 billion). The result was a trade surplus of $19.2 billion for the first 10 months of 2009, representing a decline of 25 percent from the 2008 travel and tourism trade surplus.

The tanking of the travel market at the end of 2008 – following the near-collapse of the global financial services market in September – marked the end of more than five years of consecutive monthly growth in travel and tourism exports. For the past 12 months, the situation has been grim, but the pressure appears to be easing, at least slightly.

The broader economic climate seems to be improving slowly, but it remains vulnerable to many risks. Another financial time bomb could send everything off the rails again, so it’s certainly too soon to say the travel market is returning to normal. There are signs, however, that it could be headed in the right direction. Fast and easy answers, on the other hand, will remain elusive for a while.

Hawaii needs your help!

by Tom Johansmeyer on

Hawaii needs $1.23 billion and could use your help. Governor Linda Lingle is calling it a “fiscal crisis” and says it won’t be fixed with budget cuts alone. Essentially, the fiftieth state wants everyone else to chip in. This year’s budget gap is $721 million, which will be followed by $509.5 million next year. The state might not hit pre-recession levels until 2014.

According to Lingle, “The stark reality of continuing declining general fund revenues means the state does not have sufficient resources to cover all expenditures.”

The problem is exactly what you’ve seen here on Gadling for a while – the travel market sucks. Hawaii relies on tourism to bring in the cash; the industry touches 74 percent of the state’s jobs directly or indirectly (at least as of 2007).

Georgina Kawamura, the state’s director of budget and finance, tells Reuters, “I can only remain hopeful that we are now at the bottom and will start to pick up.”