OUTLOOK
High and Low
HOTELS AT THE UPPER END OF THE MARKET ARE THRIVING . IT ’ S THE LOWER END THAT IS WORRISOME .
By DAVID EISEN
The rich get richer and the poor get poorer . It ’ s a bit reductive to employ the aphorism to describe the current state of the hotel industry , sure , but it ’ s not far off .
Lodging companies , to a man , made it clear that there is a slowdown in performance at the lower thresholds of the hotel market , as travelers pull back on some of their travel spend . Chris Nassetta , president and CEO of Hilton , crystallized it during his company ’ s second-quarter earnings call , stating , “ Checking accounts were full of money coming out of COVID . Well , they ’ ve spent all that money and now they ’ re borrowing more . They have less disposable income and capacity to do [ things ], including travel .”
The divergence between those who have more and those who have less was made further clear by Nassetta . At the upper end , he said people still have “ pretty fat bank accounts .” His travel conclusion : “ It ’ s just soft .” Others who study the vacillations within the hotel industry are seeing data that backs up Nassetta ’ s divergence claim . “ We ’ re using this term bifurcation to encapsulate what ’ s going on in the U . S . hotel industry today ,” said Jan Freitag , national director , hospitality market analytics , CoStar Group . “ The luxury and upper-upscale-type properties are seeing robust growth versus the economy-type properties seeing a deceleration in demand and RevPAR .”
According to CoStar data , luxury RevPAR year-to-date June 2024 is up 2.1 % while economy RevPAR year-to-date June 2024 is down 4.4 %.
Geoff Ballotti , president and CEO of Wyndham Hotels & Resorts , whose brands , including Days Inn and Super 8 , skew heavy in the economy segment , remains rosy despite the less-than-auspicious numbers . “ We believe that the current RevPAR environment is transitory in nature despite the occasional downturn ,” he said during his company ’ s Q2 earnings call with analysts , adding that since 2000 , and through four lodging cycles , U . S . RevPAR for the select-service segments has grown at a 2.6 % compounded annual gross rate .
But demand has been slowing in the economy segment for some time now . In June , CoStar projected RevPAR growth of 2 % for 2024 and 2.6 % for 2025 across all chain scales , but in the midscale and economy segments , it forecasted negative RevPAR growth of -1.2 % and -3 %, respectively .
“ This idea of the lower-end consumer thinking long and hard about the trip and maybe not taking the trip is concerning if you ’ re on the economy side , because we ’ ve been seeing demand deceleration for quite a while now ,” Freitag said . Performance within the travel industry is heavily predicated on the whims of the overall economy . Persistent inflation has resulted in higher grocery prices , higher rents , higher insurance , which , as Freitag pointed out , “ eats into the non-discretionary budget and travel is clearly discretionary .”
Sky-high credit-card debt is another culprit that is keeping travel down . Overall credit-card debt in the U . S . now sits at $ 1.14 trillion , according to a recent Household Debt and Credit report from the Federal Reserve Bank of New York ’ s Center for Microeconomic Data .
The upper-end consumer , despite the occasional blip , still feels generally good about their position , allowing it to not cut into their travel plans . Homeowners are still benefitting from higher housing prices and a stock market where the S & P 500 is up 15.3 % this year through June . Meanwhile , TSA checkpoint travel numbers are at record levels having bested 2019 levels .
A strong dollar is enticing U . S . travelers to go abroad , which , conversely , means they aren ’ t spending as much money on hotels domestically . “ I ’ m not sure when that ’ s going to fully reverse ,” Freitag said , adding that it “ looked like Americans had taken over Paris ” during the recently concluded Olympic Games .
Something most hotels are benefitting from is the solid return of group business . Marriott International President and CEO Tony Capuano made that clear on his company ’ s Q2 earnings call . The segment comprised 24 % of worldwide room nights in the second quarter for Marriott and
18 hotelsmag . com September 2024