Not that word again
By Brad Garner
- Luxury hotels have been hit hardest by current economic and operating environment. The current luxury stigma and a genuine lack of business and group demand has driven rates down steadily from September 2008 to more than an 18.0-percent rate of decline through May 2009.
- Upper-upscale properties appear to be suffering from some of the same luxury stigma as those brands positioned/operating in the luxury scale, though they could be benefitting somewhat from a trade-down effect. Current rate of decline in ADR for the category has settled to -12.9 percent to end May 2009.
- Upscale hotels are experiencing moderate ADR erosion—relative to the luxury and upper-upscale segments—of -11.2 percent in May 2009. Trade-downs to select-service offerings and the heavy concentration of extended-stay product within the segment have worked to cushion a rate free-fall in the category.
- Midscale-with-food-and-beverage properties appear to be benefitting from guests seeking better value in a cheaper full-service offering—perhaps one that includes meeting space amenities. Furthermore, a stable occupancy (inelastic demand) in the category over the past several years has helped to dampen any extreme rate corrections. The segment posted a rate decline of 5.8 percent in May 2009, a result that is similar to the decreases seen in its midscale-without-F&B and economy chain counterparts over the last nine months.
- Midscale-without-food-and-beverage hotels have the honor of leading all chain scales in the least amount of decline (lowest loss) in ADR—down 5.3 percent through May of 2009. The segment is benefitting from drive-in leisure transient guests and thrifty travelers at large.
- Historical price points and general positioning of the economy chain scale segment have led to somewhat consistent levels of absolute ADR and rate growth over the last eighteen months. While rate growth in the segment has gone negative given the current economic environment, much like the midscale-without-F&B chain scale, value- and budget-conscious travelers have softened levels of rate deterioration. ADR in the segment is down 6.0 percent for the month ending May 2009.
- Independents, while not defined as a chain scale, make for an interesting review. Managing both yield and price for a single hotel unit rather than a national chain/brand pricing strategy appears to have let independents be the last category to react with ADR corrections for much of 2008. However, rate growth for independents has mirrored that of luxury and upper upscale chains after the financial and economic meltdown that started in the third quarter of 2008—down 10.9 percent for May 2009.
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