Posted by Ric Garrido

Travel Going Down, Down, Down. It’s the Economy, Stupid!

Global hotel rates are up overall, year-over-year for July 2008, in all regions except the Caribbean, reports STR Global.  The STR Global survey set of over 36,000 hotels and nearly 5 million rooms probably comprises all of the 25,000 or so hotels in the top 10 major hotel loyalty programs.

The Middle East/Africa was the only global region to experience increased hotel occupancy.  Oil and war must be a good hotel filler combo.  The more than 3% higher occupancy levels were in the face of a 30% increase in average room rates in July.   With per night average room rates still only at $150 for the North Africa/Middle East region, the low cost North Africa hotels mitigate the luxury priced rates of Dubai.  The most expensive hotels regionally on average are to be found in Europe, but the recent drop in Euro value relative to the dollar throughout August could mean an actual decline for prices in US Dollars in the coming months.  Europe is seeing tougher economic times developing and the hotel rate increases for the coming year are unlikely to match the exuberant room rate hikes of 2007. 

European hotels had occupancy declines of over 2% from summer 2007 to 2008 and the Asia Pacific region had a larger decline of 7% occupancy, yet average room rate increases of more than 14% in both regions kept hotels profitable.  Currency exchange rates more favorable for Americans coinciding with a general overall drop in hotel travel throughout much of Europe may make 2009 a good year for finding more reasonable room rates for an American traveling internationally.

South America is seeing occupancy gains year-over-year for the hotel industry.  My last international trip to South America in 2007 provided great value for the dollar on transportation ($5USD extra to travel First Class on a one hour, 3-cabin, high speed deluxe ferry from Buenos Aires to Colonia, Uruguay), hotels (six different Starwood properties), and food ($1.00USD for 1.0L bottles of Stella Artois in the local Buenos Aires market). 

North America is experiencing declining hotel occupancy, led by the Caribbean hotels.   The Caribbean is the one global region that has not been able to sustain positive revenue growth for the year.  Rates have dropped for Caribbean hotels (but, still way overpriced!) while the Americas as a whole saw an increase for room rates by almost 3% for the past year.

As an industry, hotels have been raising room rates at a pace much higher than inflation for the past four years.  This is at the same time the American working person is on average not earning pay rises to match the inflationary pressures.  California is at a 12 year high for unemployment at 7.3%.  The average hourly wage in California has increased 2 cents over the past three years from $22.52 to $22.54.  Everything in the household budget is increasing in cost while Americans on average had the biggest decline in three years for personal income. 

At 2,000 working hours per year, the average worker has earned about 4,000 hotel points worth of wage gains or 2,000 frequent flyer miles in additional wage value per year.  At least the loyalty points and miles are not taxed like wages.  A traveler better start collecting MyPoints to supplement the travel budget.

Economic necessity is compelling the consumer to make choices of where to spend money.  And all travelers are consumers.  Hotels seem to be one of the cuts for many travelers as evidenced by hotel occupancy declines in most regions of the world.

The interesting factor I am waiting to see is how hotel loyalty programs restructure their free night redemption charts over the next year.  Hotel loyalty programs in the past have based their redemption rates for a free night using points on the hotel’s average daily rate for a room.  On one hand the lowest average daily rates are in North America ($108) when compared to Europe ($167), the Middle East ($150), and Asia Pacific ($137) regions.  On the other hand, the large majority of hotels in most of the major hotel corporations are located in the USA and although these hotels have some of the lowest rates worldwide, most of the free room redemptions for the major hotel loyalty programs are made at USA hotels. 

Hopefully, the loyalty traveler will see “category creep” be a minor issue in 2009.  There has been an alarming category reclassification shift over the past three years.  The hotel loyalty programs have moved most of their hotels up at least one category in redemption level and many hotels to much higher category levels for free nights using points.  The hotels used to be distributed more heavily towards the lower redemption levels in the Starwood, Marriott, and Hilton programs.  Hotels in the Category 1 and 2 segments have been dwindling as the Category 4, 5, and higher hotels swell in numbers.   Perhaps 2009 will be the year when a significant number of hotel properties in the USA actually drop in redemption category.  Now that would be a boost for the frequent guest and actually justify a full-scale press release for a program enhancement.

 

Loyalty Traveler note:  Much of the commentary here is based on the research work and data of Smith Travel Research and STR Global who produce a variety of reports on USA and global hotel rates and occupancy levels. 

 

The Happiest Place on Earth – Orlando, Florida actually saw a decline in room rates for July 2008 by almost 2% from last year.  A sign for 2009?

 

 

 

 

3 Responses

  1. [...] See my post last week to read more about category shift and global hotel rates, “Hotel Travel Going Down, Down, Down.  It’s the Economy, Stupid!” [...]

  2. [...] month I blogged about the global hotel report by Smith Travel Research showing the Caribbean had the only decline of [...]

  3. [...] Sep 3, 2008: Hotel Travel Going Down, Down, Down. It’s the Economy, Stupid! [...]

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