MeetingNews Cover Story: Mixed Bag for Planners

Despite plenty of hotel construction activity and business moves in
2007, PricewaterhouseCoopers delivered mixed results for the U.S. hotel industry—and lukewarm news for meeting planners—in its annual hotel industry report. While the number of 2007 room starts was above PwC's calculated longterm average for the second straight year, U.S. hotel occupancy this past October (most recent data available) hovered around 65 percent, marginally better for hoteliers than October 2006's 63.3 percent. And, both lodging demand and supply growth are below their longterm averages, according to PwC, based on data from Smith Travel Research.

"Despite how good the hotel industry feels, growth is still below the long-term trend," said Bjorn Hanson, principal of PwC's hospitality and leisure group, during a briefing at the consultancy's New York City headquarters in mid-December.

The news on hotel rates was similar. While the industry's average daily rate (ADR) eclipsed the century mark for the first time in 2007, at $103.70 in October 2007, the rate was still below PwC's long-term average. And,"take inflation out, and it's only slightly above the 2000 rate," said Hanson.

"The bad news for the hotel industry is that all the innovations it has made, such as flat-screen TVs and Internet access, have not resulted in real ADR
growth. "Moreover, ADR growth for hoteliers—as well as revenue per average room (revPAR) growth—has been slowing down since 2006, according to PwC statistics.

Yet, the fact also remains that it is still a seller's market for meeting planners scouring for group rooms and meeting space, as U.S. hotel supply remains tight. Forecasting a mix of good and bad, Hanson said 2008 "won't be transformational" for planners. Despite gas prices being at their highest levels since 1980 and forecast to rise 6.6 percent this year, a PwC calculation showed that they've dampened lodging demand by just 0.5 percent.

"Hotel availability will ease a bit," he said of the tight supply, but because of pent-up demand, "hotels can keep charging higher room and F&B rates." On top of that, Hanson said suppliers will be tacking on surcharges and might even start charging meeting room setup fees. Echoing recent sentiment, he suggested that planners look for opportunities in second- and third-tier destinations for hotel availability and deals.

"The hurricanes in 2005 really had a dramatic effect on both supply and demand dynamics by putting a large number of guest rooms out of service," said Hanson. That year, the industry posted negative supply growth against 2.8-percent demand growth, tightening the market. Although demand growth has slowed since, lodging supply growth inched just 0.2 and 1.3 percent in 2006 and 2007.

The good news for planners is that the lodging construction rate is back to historical-high levels. Work on around 140,000 new sleeping rooms began in 2006, and 2007 saw a similar number of new-room builds, after five years of below-average room starts, said PwC, working on data by F.W. Dodge. And, the dollar is forecast to strengthen against the euro throughout this year (by 5.8 percent) and into 2009, increasing U.S. planners' buying power in Europe and perhaps lowering European demand for U.S. meetings.

Contact William Ng at [email protected]

Originally published January 07, 2008