Book now or pay even more later: US hotel rates surge to record high
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If spring break serves as the canary in the coal mine of what to expect for the upcoming travel season, the results are clear: Prepare to pay a lot for a hotel stay in the U.S.
The U.S. continues to outperform China and Europe in terms of revenue per available room, the hotel industry’s go-to performance metric. American hotels earlier this month outperformed 2019 levels by 8% while European hotels were down 24% and Chinese hotels saw a 63% decline.
The weaker performance figures stemmed from lockdowns in Shanghai amid a surge of new coronavirus cases, while the war in Ukraine affected European hotel performance.
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Back in the U.S., the number hotel owners are likely to brag about is the one most impacting travelers: The average daily rate charged for a hotel room.
The average U.S. hotel daily room rate last month was $146.61 — the highest average daily room rate of any month on record, according to hospitality data firm STR. When adjusted for inflation, it’s only about 2% below 2019 levels.
It’s a major win for hotel owners who want to recover as quickly as possible from the decimated performance levels seen over the span of the pandemic. It’s also a reminder to book as soon as possible considering how expensive it will be to travel this summer, particularly in leisure-oriented destinations.
Average rates in Miami last month, for example, were $329.50, up from the $252.80 seen in 2019, according to STR. In Tampa, room rate averages climbed from $173.90 in 2019 to $211.35 this year.
However, spring travel demand wasn’t just from people taking a vacation.
“Easter and spring break are just the two obvious indicators of continued pricing power for the U.S. hotel industry driven by, as we had said repeatedly before, very healthy leisure demand,” said Jan Freitag, national director of hospitality analytics for STR’s parent company CoStar. “We are now seeing some return of groups.”
Leisure travelers will find more competition for hotel rooms, as the group travel sector — those booking hotels for meetings and events — is showing signs of a revival. U.S. hotels sold a combined 6.6 million group room nights in March. That’s still short of the 7.8 million seen in March of 2019, but a sign that the recovery of yet another hotel demand driver is underway.
The lingering gap between now and 2019 demand levels for group booking activity is likely from the biggest kind of events. Large corporate events and city-wide conventions like the Consumer Electronics Show in Las Vegas still aren’t taking place with pre-pandemic attendance levels. Attendance at CES earlier this year was well below 2019 levels in light of the omicron variant surge.
“We’re getting closer now,” Freitag said. “That last million [group nights] that are missing is obviously the hard one [to build back].”
There is plenty to be optimistic about, as companies are still hosting smaller regional meetings and board meetings, Freitag added. Spring and summer are also peak months for weddings, which fill up hotels.
A disjointed global recovery
China and the U.S., respectively, led the world in terms of hotel recovery from the pandemic. Both countries have large populations that could prop up domestic hotels in leisure destinations even with international borders closed. The Middle East, led by Dubai in the United Arab Emirates, more recently vaulted into a recovery leadership position, as the region loosened international travel restrictions.
Even Europe, typically more reliant on international travelers to fill hotel rooms, began to accelerate in recovery toward the end of last year. European hotels even moved into second place of the “Big 3” hotel markets, as China’s strict lockdown measures in response to new outbreaks of the virus tanked hotel performance there.
Hotel executives are likely to focus on U.S. performance during the upcoming earnings season in light of the volatility of Europe and China. Publicly traded hotel companies begin to report first-quarter earnings later this week.
“The U.S. overall leads the way. Especially room rates on the higher end, leisure is just gangbusters right now, as people are certainly finding out when they’re trying to book their spring break or their summer vacations or even their winter vacations. You better get going on those right now,” Patrick Scholes, managing director of lodging and leisure equity research at Truist Securities, said. “[Hotel executives will] certainly point to that, and then people will say they’re very encouraged by the pace of recovery for the business traveler.”
Mid-week reports from the number of people passing through TSA security checkpoints at U.S. airports in recent weeks show the gap narrowing with pre-pandemic levels. It’s not scientific, but mid-week passenger counts typically signal how much business travel is happening.
Business travel remains the demand sector with the biggest question mark hanging over it, especially as companies are still figuring out what hybrid work-from-home schedules look like. Even a modest recovery of business travel on top of the already robust leisure and group rebound means one thing: The average hotel rate is only going to go higher.
Featured photo by Nick Ellis/The Points Guy.
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