Currency Exchange Rates Have Differential Impacts On U.S. Lodging Demand | PKF Reports

Consistent with conventional wisdom, currency exchange rates do influence the performance of U.S. hotels, but the magnitude of the impact varies significantly depending on the location of a hotel and the chain-scale in which the hotel competes. These are the findings of an analysis recently completed by PKF Hospitality Research, LLC (PKF-HR) and presented in a whitepaper entitled Measuring the Influence of Currency Exchange Rates on United States Lodging Demand.

"We examined currency exchange rates and U.S. lodging demand for the period 2000 through the first quarter of 2012, while controlling for several other factors that have an effect on travel," said John B. (Jack) Corgel Ph.D., the Robert C. Baker professor of real estate at Cornell University and senior advisor to PKF-HR. "While the correlation between exchange rates and demand at a national level was statistically significant, I would classify the relationship as modest. However, when we examined the data on a local level, we found results that should influence the behavior of property managers."

In addition to information from PKF-HR's internal databases, PKF researchers used data from Smith Travel Research, the Federal Reserve Board, the International Travel Association, the U.S. Department of Transportation, and Moody's Analytics to conduct the analysis. A detailed explanation of the research process is contained in the whitepaper.

Price and Location

As expected, hotels in the nation's gateway cities are the greatest beneficiaries of increased demand when currency exchange rates result in a relatively weak U.S. dollar. However, the benefit is not shared equally among all properties. "We observed a strong correlation between exchange rates and the demand for upper-priced hotels in the gateway cities, but not so for lower-priced properties," noted Jamie Lane, economist at PKF-HR and co-author of the whitepaper. "When the U.S. represents a bargain destination, the value proposition for upper-tier hotels is greatly enhanced, and international travelers will take advantage of the opportunity. On the other hand, the price-sensitive travelers that seek modest accommodations are more consistent with their travel patterns and less reactive to changes in the relative value of their currency."

Ups and Down

The symbiotic relationship between exchange rates and lodging demand does have advantages and disadvantages. While the upper-priced hotels receive the benefit of increased levels of occupancy during periods of a depressed U.S. dollar, this source of demand does diminish when the exchange rate is not favorable. "The good news is that exchange rates are typically influenced by the health of the U.S. economy," said Aaron Walls, senior economist with PKF-HR and co-author of the whitepaper. "In general, when the U.S. economy is down, declines in domestic travel have the potential to be offset by a rise in international guests."

Conclusions

"For the most part, the research results confirmed our initial thesis. Lodging demand in the nation's major gateway markets is most sensitive to changes in exchange rates. But the disparity of the impact on upper- versus lower-priced properties is noteworthy," Corgel concluded.

To download a complimentary copy of "Measuring the Influence of Currency Exchange Rates on United States Lodging Demand", please visit www.pkfc.com/currencyexchange.