If you have any upcoming trips planned, you might want to book your hotel rooms now or as soon as possible. Unlike airlines, which cut capacity by 10% to 15% effectively managing to maintain record high load factors while eliminating their lowest airfares, hotels haven’t been so nimble in the current economic downturn. With demand declining over the last two years and newly constructed hotel properties still opening their doors during this recession, hotel occupancy rates have plummeted and so have room prices.
While airlines are easily able to trim flight schedules, ground airplanes, and defer new aircraft orders to accommodate a drop in travel demand, hotels can’t react that quickly. The lead time for hotel construction can stretch over several years. Most new hotels are conceived and planned during good times. Ground is often broken and construction begun when the economy is booming, but the economic climate has often changed drastically by the time those new properties actually open their doors, just when the industry doesn’t need any new hotel rooms.
But travelers can take advantage of the misfortune of the hotel industry. According to Smith Travel Research (STR), which studies the hotel industry, occupancy rates at U.S. hotels plummeted by 4.4% in 2008 and 8.6% in 2009, and although STR projects occupancy rates to be flat this year, it’s still a buyer’s market now. Just two years ago, U.S. hotel occupancy rates were in the 70% range. Now they’re hovering around 55%, and although STR projects demand to increase by 1.8% this year as the economy begins to recover, there will also be an accompanying room capacity increase of 1.8% from new hotel openings, thus wiping out any pricing power hoteliers might have gained from the projected upturn in travel.
With such depressed occupancy rates, room rates have dropped accordingly. In 2009 the average daily room rate in the U.S. dropped by 8.8%, according to STR, and they are projecting a further decline of 3.2% this year. Two years ago, the average daily room rate was over $100 per night while STR is projecting an average daily rate in the vicinity of $94 in 2010.
So the message is clear: If you are planning to travel, this should be a good year to save money on hotel costs. You should note, however, that STR and PKF (another hotel research company) are projecting the second half of the year to be considerably better for hotels than the first half, which means you should book as many of the your upcoming hotel stays now before growth returns and hoteliers are able to raise prices again.