While talk of a bottom in the economy and the travel industry is certainly encouraging, there are continued signs of erosion in the hotel pricing environment. Occupancy declines may have leveled out in recent months, but a broad survey of rate quotes through the end of June suggests that pricing pressure has yet to abate. Look for accelerating rate declines in 2Q.
Rate Quote Survey. PhoCusWright surveyed daily room rate quotes posted online for over 3,600 hotels in both the domestic and international market for the period from 4/1/09 through 6/30/09. In order to assess relative strength or weakness, we look at the sequential change in monthly average quotes relative to historical seasonal patterns. In addition, quotes for each month are surveyed twice (e.g. June quotes surveyed on 5/15 and 5/30) in order to track changes as the date of stay approaches.
Highlights. There are three key points to highlight: 1) Quotes for May and June declined well in excess of typical seasonal patterns, 2) There are steeper sequential declines in Europe, and 3) Weakness appears centered in major cities and higher end hotels. While occupancy declines have stabilized at 10-12% in recent weeks, our survey suggests that the decline in room rate trends could still be accelerating into the Summer travel season.
May-June Trends. The survey showed average monthly quotes down 2-3% in June versus May, which compares to an average decline over the last three years of 0.6%. The average quote for June was down by over 1% and that compares to an average gain of 0.3% in the past three years. The average quote for April was down nearly 2% from 3/15 to 3/30, the May average was down 1.3% from 4/15 to 4/30, and the June average fell 1.2% from 5/15 to 5/30. The trend is worse in international markets, with May down 4% sequentially from April and June down 3% from May. We saw particular weakness in May with the average quote falling 10% from the first survey on 4/15 to the second on 4/30.
So What? We conclude based on the sequential erosion and drop in re-tested quotes that year-over-year declines in room rates should accelerate from 8% in 1Q to 10-12% in 2Q. While the stabilization in occupancy is encouraging and the first step in establishing a bottom, pricing pressure remains intense and we would not anticipate a quick recovery in rates.
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PhoCusWright is the travel industry research authority on how travelers, suppliers and intermediaries connect. Independent, rigorous and unbiased, PhoCusWright fosters smart strategic planning and tactical decision-making.
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