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Global Hospitality Advisor: RevPAR Growth Slowing, But Still Good

Report from Smith Travel Research

What would Meet the Money® be without an up-to-date report from Smith Travel Research (STR)? Below are current statistics, for the 12 months ending March 2007, as presented by STR Senior Vice President, Bobby Bowers.

This supply-demand chart is a classic. It shows results since the late 1980s and dramatically illustrates how room demand growth accelerated from late 2002 and has then gradually settled back down over the past few years, while the growth in supply has been trending downward since the late 1990s until it bottomed out 2006. Remember, these numbers are not the percentage changes in the absolute amount of demand (measured by room nights) or supply (measured by number of rooms), but reflect the percentage of change. The crossover of supply and demand growth rates in 2007 is a significant event, but does not, by itself, herald any impending doom, particularly given the long period during which demand has been growing faster than supply.
This bar chart shows supply-demand information for the past four years, as well as projections for 2007. It illustrates the pent-up demand that has been accumulating since 2003, and why the small crossover in supply growth—now exceeding demand growth—may be of less concern than it would under other circumstances.

This chart shows two of the most important components for measuring performance in the hospitality industry: changes in occupancy and ADR. In evaluating what the statistics mean, it may be useful to recall that 1989 to 1993 marks one of the darkest periods in the hospitality industry with thousands of hotel bankruptcies, and that 1993 to 2000 marked some of the best years in the industry, the likes of which still have not been equaled on an inflation-adjusted basis. Does the divergence between occupancy and ADR that started in late 2004 have similarities to the divergence that started in late 1993 or early 1994? How important is it that occupancies are projected to actually decrease in 2007 as opposed to merely moderating in 1994 through 1996? This is particularly interesting when compared to RevPAR shown on the first chart.

This chart dramatically shows all-time record levels of RevPAR increased for 2004, 2005 and 2006. By any historic standards, a 5% RevPAR increase is great! The question will be how long and how far RevPAR growth decreases continue. There is still no cause for panic. There may be a wake-up call around the corner, but the fundamentals are still so strong that this does not signal an immediate problem.

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Bobby Bowers, Senior Vice President, Smith Travel Research, can be reached at 615.824.8664 or bobby@smithtravelresearch.com.