Spring Is On the Way and the Outlook Is Brighter

By Matthew Costin Global Director (Hotels & Hospitality), BDRC Continental | April 20, 2014

That is, if relations between the White House and Capitol Hill about budgets don't deteriorate and nothing gets worse in the Ukraine, South China Sea, the Arabian Gulf and so on. It was ever thus.

The US economy is on the up and the hotel industry is going along for the ride. Hotel room demand has recovered at an accelerating pace in the past year. To such an extent, in fact, that US hotel demand is now predicted to outstrip supply within 2 years, in 2015/16. That should help ADR and RevPAR so long as we don't see further federal government shutdowns (which impacted November 2013 significantly). The improving economy is reflected in a number of lodging industry statistics. For most of 2013, occupancy levels, ADR and RevPAR were all higher than last year.

As the global economy gains momentum, overseas demand is helping to fill US hotel rooms too. Easier visa requirements and quicker processing will smooth the path of the inbound traveler. In fact, simplified visa processing has become a surprise competitive edge for destination countries seeking a larger slice of the (often Chinese) overseas visitor market.

A 14% increase in the total volume of business hotel nights spent by Americans traveling in their own country was driven by an expansion in participation – an estimated 42 million Americans made a business hotel stay within the US in the previous 12 months, up by 5 million against the previous year. The domestic leisure market grew by a more modest 5% - most of which came from growth in the short break 'staycation' market.

The US has also grown as an origination market for international business night volume with destinations such as Canada, Mexico, the UK, Germany, China and France the chief beneficiaries – not to mention Hilton and Marriott – whose lead on international business usage among American travelers is even more pronounced than it is for domestic stays.

Of more than 100 brands tracked in BDRC's USA Hotel Guest Survey, Hilton remains the No.1 ranked brand on a composite measure of brand health across business and leisure markets. The results see Hilton regain the 'Leading Choice' accolade from Marriott for business stays. Interestingly, however, a difference in opinion across age generation cohorts is apparent: while Marriott actually has a very marginal lead for brand preference among Baby Boomers and Generation X, the extent of Hilton's lead over Marriott among Generation Y is sufficient to leave it ahead overall. This appears to be driven by Hilton's stronger association with the emotional and functional priorities of the Millennial business guest – a group which actually spends more now, on average, for their hotel room, than the older age cohorts.

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The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.