Should We be Concerned About ADR?

Of Canaries and Coal Mines

By Trevor Stuart-Hill President & Founder, Revenue Matters | December 18, 2016

Projections for 2017 and beyond by STR, CBRE and PKF all call for anemic occupancy growth at best, notwithstanding record occupancy levels for the U.S. hospitality industry. With Revenue Per Available Room (RevPAR) growth projections at inflationary levels (2.5 – 3.5 percent, or so), it is clear that expectations call for Average Daily Rate (ADR) growth to continue, but will it?

Coal miners used canaries to warn them of lethal gasses they couldn't smell, see or taste. And, while we can't rely on canaries to help us stay out of trouble as hospitality operators, we may be able to rely on history. It is oft-quoted tenet that history is the best teacher and, if that is true, then we'd be well served to reflect on what we can learn from our past.

The Good

  • Sector Resilience - The hospitality sector as a whole is resilient. It employs lots of smart, dedicated and hard-working individuals. However, it is not immune to external shocks-and recovery can take considerable time. Renata Kosova and Cathy Enz published an excellent article (Cornell Hospitality Quarterly – September 2012 ) that examined the impact and industry response to two major external shocks from the previous decade (the terrorist attacks of September 11, 2001 and the financial crisis of September 2008). Their study concluded that hotel management didn't fall into disarray, but successfully addressed the effects of these events as evidenced by hotels' eventual recovery.

  • Cyclical Demand - If the past several decades are any indication, it is clear that demand in the hospitality industry is cyclical. As such, it has required hospitality executives to adapt to ever-changing conditions.

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Coming up in December 2018...

Hotel Law: New Administration - New Policies

In a business as large as a hotel and in a field as broad as the law, there are innumerable legal issues which affect every area of a hotel's operation. For a hotel, the primary legal focus includes their restaurant, bar, meeting, convention and spa areas of their business, as well as employee relations. Hotels are also expected to protect their guests from criminal harm and to ensure the confidentiality of their personal identity information. These are a few of the daily legal matters hotels are concerned with, but on a national scale, there are also a number of pressing issues that the industry at large must address. For example, with a new presidential administration, there could be new policies on minimum wage and overtime rules, and a revised standard for determining joint employer status. There could also be legal issues surrounding new immigration policies like the H-2B guest-worker program (used by some hotels and resorts for seasonal staffing), as well as the uncertain legal status of some employees who fall under the DACA program. There are also major legal implications surrounding the online gaming industry. With the growing popularity of internet gambling and daily fantasy sports betting, more traditional resort casinos are also seeking the legal right to offer online gambling. Finally, the legal status of home-sharing companies like Airbnb continues to make news. Local jurisdictions are still trying to determine how to regulate the short-term apartment rental market, and the outcome will have consequences for the hotel industry. The December issue of Hotel Business Review will examine these and other critical issues pertaining to hotel law and how some companies are adapting to them.