Hotel Industry Awaits Business Cycle Recovery; Bear Stearns Research Finds Business Cycle Is Key to Hotel Industry
NEW YORK -- A new report by Bear, Stearns & Co. Inc. finds that a recovery in corporate investment spending is key to a sustained pick up in the hotel industry. "The business cycle, which includes corporate travel, is the main driver of demand for full-service hotels," said Bear Stearns senior managing director Mark Abramson who recently launched global hotel industry coverage, adding 11 North American hotel companies to his existing European...
According to the report, Initiating Coverage of North American Hotels, hotel analysis has traditionally relied on overall Gross Domestic Product as a way to measure hotel demand. But Abramson notes GDP doesn't always capture hotel demand accurately. "A sustained pick up in full-service hotel activity really depends on a business recovery more than anything else," said Abramson. "GDP is simply too broad a measure and can be misleading especially when the business and consumer cycles are out of synch, as they are now."
Abramson has also tapped into the firm's global research on airlines and real estate to take the hotel industry's pulse. In the report, Abramson illustrates how large-cap hotel stocks trade very closely in line with an index blending airlines and commercial property. Abramson also notes that airline traffic and capacity numbers are often good indicators of hotel activity.
The next big test for hotel demand comes this fall when the 2004 corporate rate negotiation season begins. That's when hotel companies obtain rate and volume commitments from key customers for the following year. "Business confidence plays a major role when companies reassess their spending plans for the upcoming year," said Abramson. "How companies feel about the business environment at the end of the summer and early fall will shape the outlook for the hotel industry in 2004."
But at least one key measure of hotel health appears to be shaping up nicely. Abramson predicts that 2004 should see revenue per available room, or RevPAR, move into positive territory for the first time in two years. After falling 3.1% in 2002 and a projected 1.1% in 2003, Abramson expects RevPAR at full-service hotels to rise 4.1% next year on higher room rates and occupancy levels. "RevPAR at full-service hotels should start inching up in the third and fourth quarters of this year," said Abramson. "But even when you take into account the gains expected next year, RevPAR will still be way below the peak reached in 2000."
For a copy of the report, members of the press may call Monica Orbe at (212) 272-9294 or email
Founded in 1923, The Bear Stearns Companies Inc.