How will the Sluggish U.S. Economy Affect the Hotel Industry?

The U.S. hotel industry has continued to sail forward, despite slowing employment growth and tepid gross domestic product. RevPar, a key industry metric calculated by multiplying a hotel’s average daily room rate (ADR) by its occupancy rate, also rose for major U.S. hotels. As long as the U.S. economy does not plummet in 2016, many in the industry are anticipating gains in both RevPar and occupancy.

Choice Hotels International, the operator of brands like Comfort Inn and Econo Lodge, saw its RevPar rise 5.8% year over year in the quarter. In addition, Choice Hotels’ occupancy levels improved by approximately 120 basis points from last year, thanks to an increase in demand for rooms from business and leisure travelers. Choice Hotels’ competitors, Marriott and Hilton, also enjoyed a strong third quarter. RevPar rose by 4.2% and 5.8%, respectively.

Despite these gains, however, Choice Hotels’ third-quarter earnings were only 72 cents a share. This matched the profit forecasts made by Wall Street. In addition, RevPar and rate of occupancy was slower than what was seen in the second quarter.

Choice Hotels President and CEO Steve Joyce downplayed any impact of the slowing U.S. economy, “It’s not the economy. For the third quarter we ended up a little short of where we thought as there were some technical reasons — there were two fewer Fridays, and Labor Day weekend shifted; also August was a little slower,” He went on to say that “September boomed back, so we are not concerned at all as we are seeing really strong results.”

Research by industry research firm STR reveals that the U.S. hotel industry has seen a 6.7% increase in RevPar this year through the month of September. In addition, the occupancy levels across all U.S. hotels in the last 12 months through September have averaged 65.4%. According to STR, this is the highest in any one-year period since 1988.

In general, the hotel business is more reliant on employment, consumer confidence and supply/demand than ever before. Hotel executives are now eagerly waiting to see what happens with Starwood Hotels. According to Bloomberg Business these hotels are rumored to have received buyout interest from Hyatt and several Chinese firms. Choice Hotels is especially interested to see the outcome. “If someone that is an existing competitor picks Starwood up, that will make that competitor a lot stronger than us…” explained Joyce.

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