First-quarter performance by multi-brand hotel companies underscored the deep difficulties the industry is facing, particularly in upper-tier hotels, as analysts continue to pare 2009 expectations.
In the first three months of this year, the U.S. lodging industry saw revenue per available room drop 17.7 percent compared with the same period in 2008, according to Smith Travel Research, which also showed occupancy down 10.9 percent and average daily rate fell 7.7 percent.
"With the first quarter of 2009 now behind us, it is clear that declining room rates are taking a harder toll on performance than we were expecting," Smith Travel Research president Mark Lomanno said in a statement. "It appears that many hoteliers are embracing the very same pricing and room distribution strategies implemented in the 2001/2002 downturn."
In response, STR in late April revised its 2009 U.S. hotel industry forecast to project a 9.8 percent year-over-year decline in revenue per available room, a much deeper drop than its late October 2008 projection of 2.5 percent, though it said some recovery also is likely in the second half of the year. For the full year, STR is forecasting 2009 occupancy to be 56.5 percent, down 6.5 percent from 2008 levels. The forecast for average daily rate is a 3.6 percent decline.
All publicly traded major U.S. hotel companies reported double-digit percentage decreases in RevPAR for the quarter.
"We redeployed some sales associates to focus on new accounts that are actively booking group events, such as associations and smaller accounts," Starwood Hotels & Resorts Worldwide CEO Frits van Paasschen said during Starwood's earnings call. "We saw 3,000 sales and hotel executives hit the streets to call over 20,000 customers in North America."
Marriott International CFO Carl Berquist said during Marriott's earnings call that persistent corporate demand weakness has sparked deterioration in pricing power, noting "significant competitor discounting of room rates for corporate business in many markets."
Marriott would "not lead the market down on rates," Berquist said, but added the company would not "lose share by failing to respond," adding, "Room rates are likely to remain weak until the economy shows meaningful improvement."
Berquist said transient demand showed its first signs of weakness a year ago, led by the financial services industry. "We saw some resilience in pharmaceuticals and defense in the first quarter," he said, "but this was only relative to the other sectors we tracked."
Originally published May 25, 2009