April 01, 2020

RevPAR Drop Ever Due to Coronavirus Pandemic

Group occupancy dropped nearly 100 percent. 'Get comfortable with discomfort,' advised STR.

Thanks to the coronavirus pandemic, the performance metrics of the U.S. hotel industry are in an unprecedented free fall. For the week of March 15-21, revenue per available room dropped nearly 69.5 percent year-over-year, the biggest drop ever recorded by lodging data provider STR. Group occupancy stood at 1 percent, essentially a 100 percent drop in most of the country's top markets. And that 1 percent could be a "false positive," according to Jan Freitag, STR senior vice president of lodging insights, as it is possible that prepaid rooms could have been reported as occupied by the properties.

The drop in lodging performance is speeding up by the week, Freitag pointed out, along with the country's confirmed COVID-19 cases. "I'm sorry to say it will likely get a little worse next week," he said during a weekly performance analysis. "We're going to have a long, thorny road ahead of us when it comes to recovery — the United States case load is only just accelerating."

Occupancy in the United States is still rather high compared with other countries — 30.3 percent here, compared with 2.7 percent in Italy or 17.6 percent in Europe overall. "Europe occupancies are plummeting much faster because, of course, certain countries are in lockdown," Freitag pointed out. But the fact that the U.S. currently has nearly one in every three rooms occupied brings up more concerns for the long term, according to Freitag.

"The U.S. hotel industry occupancy is not falling as quickly as it is in other countries, or as it did in China, because there is not a national, federal lockdown on the country," said Freitag. "What that means is that there are still a lot of people traveling. What that means also, then, is that there are still a lot of people who are not practicing social distancing. And what that implies then further is that the rebound will take us much, much longer, as there are still so many more people who could get infected.

"Make no mistake," Freitag continued. "Full hotels almost equate with full hospitals. So if we want to flatten the curve and get the hospitals the space that they need, it probably means we will take a further hit to U.S. hotel occupancy," he said. "As it stands now, the upturn will likely elongate."

Demand indicates that 11.4 million rooms were sold last week. "That means there were still 11 million rooms occupied, with at least 11 million travelers in them," said Freitag. "That's half of what it was two weeks prior," he added, "but still, that's 11 million rooms occupied with people who are likely traveling and — I hope not — but could be infectious and not know that yet."

The increasing number of shelter-in-place orders across the country, as well as the skyrocketing number of confirmed COVID-19 cases, will likely contribute to a continued acceleration in plummeting demand next week.

When broken down by service class, both luxury and upper upscale had just 15.7 percent occupancy last week, with this upper end of the class scale hit hardest by the elimination of meetings. "We have never reported a 15 percent occupancy for the week — for anything," said Freitag. At the other end of the scale, economy reported the highest occupancy, at 43.3 percent — possibly including a greater percentage of people residing in hotels, and/or isolating there for longer stays. RevPAR performance was better in interstate hotels -- hotels off of highways that are probably hosting those involved in interstate commerce -- and those in areas outside of large metropolitan areas, vs. hotels in major cities and resort areas.

When looking at data for transient vs. group travel, group has dried up nearly entirely: Occupancy is down more than 96 percent, average daily rate is down 13.9 percent and RevPAR has dropped by 96.6 percent. Transient travel occupancy is down 76.3 percent, with a 13.5 percent drop in ADR and a 79.5 percent dive in RevPAR.

"The people who do better in this environment are the ones who get comfortable with discomfort," Freitag commented, relaying that advice from a friend who is a former asset manager. "I like that statement, because it highlights that our data is going to get very uncomfortable for a long time. I don't know what 'long' means, but this is not going to be a V-shaped recovery. If you're comfortable with that, the better off you will be."

On a more optimistic note, Freitag concluded, "Indeed, it will get better. We will get through this." Absolute occupancy in China has begun a very slow climb, and last week hit 22.7 percent across the country. "The China data is clear: Things are slowly, slowly recovering. As shutdowns are lifted, people want to get out there; there is truly pent-up demand."

Copyright 2020 Northstar Travel Media LLC. All rights reserved. From https://www.northstarmeetingsgroup.com. By Michael J. Shapiro.

To view all articles, check out the Internet Travel Monitor Archive