 |
While it's true demand is slowing—we anticipate 2008 closing with demand down 0.5 percent from 2007—most of our research indicates that advance bookings for 2009 aren't so far off from where they were for 2008 at this same time last year. Transient last-minute bookings, however, have been slower; but if the base of business on the books is in line with historical trends, it will make the next 18 months much smoother.
 Total U.S. room rates: actual vs. adjusted for inflation from 2000-2007 |
My mantra, of course, remains "Hold rates, keep value."
 Total U.S. hotel rooms sold vs. ADR change: quarterly change from 1988 to Q3 2008 |
The most important thing to consider in the entire demand equation is that pricing is not so much affected by occupancy as it is by overall demand growth. Historical data suggests the U.S. lodging industry can continue to maintain pricing integrity in the face of declining occupancies as long as demand growth remains positive (see trends in occupancy, demand and room rates in the 1996-2000 time period). Because of that, it appears the industry has been much more disciplined in maintaining room rate integrity during the past few months. If there is any positive to take from the recent data, it is that during the last downturn, the decline in average daily rate was much deeper in 2001—even ahead of 9/11—than what the industry has experienced in this downturn.
 Comparing occupancy and ADR levels for hotels: year-end 2007–quarterly 2008 |
Hotel owners and operators should consider that we believe most lodging demand to be inelastic, especially during tough economic times. If that is true, lower room rates are unlikely to entice people to travel.
