Despite confronting a number of macroeconomic threats last
year, the U.S. hotel industry has emerged largely unscathed and
is now witnessing rising demand and increasing lodging
fundamentals. The recent run in the sector was largely supported
by the not-so-robust but still stabilizing job market.
Other important factors like higher barriers to entry and
lower reliance on third-party wholesalers have positioned the
hoteliers to attain peak levels once again, not seen since the
onset of the global economic crisis in 2007. The hoteliers are
putting in all-out efforts to improve their primary performance
metrics like occupancy and RevPAR (revenue per available
Before the introduction of American Taxpayer Relief act of
2012, automatic tax increases and budget austerities (the
so-called budgetary fiscal cliff) forced Americans to cut down on
leisure and amusement trips through most of the year.
However, a recent study by PKF Hospitality Research shows that
the fiscal cliff notwithstanding, the U.S. hotels have a positive
outlook. RevPAR is expected to grow at a CAGR of 7.2% for the
next four years, more than doubling the historical average. As
per the report, the uncertainties surrounding the fiscal cliff
would ease by 2014 giving way to a more optimistic approach from
hotel guests, owners and operators alike.
The bullish forecast seems to have pumped fresh blood into the
hospitality sector. Hotel owners are investing huge money and
driving innovations in the hope of a brighter future. A recent
report by CNBC projects an improvement in several metrics in
The U.S. hospitality sector, specifically in New York, San
Francisco, Chicago and Los Angeles, continues to display signs of
expansion and growth. Worth mentioning here are
Intercontinental Hotels Group plc
Starwood Hotels & Resorts Worldwide Inc.
Marriott International, Inc.
Choice Hotels International Inc.
The hotel owners believe, apart from improved operating
fundamentals, upper-tier lodging segments are expected to achieve
an increased RevPAR in 2013, as occupancy levels in these
segments have already met or exceeded pre-recession levels.
Will Labor Market Woes Fade the Efforts?
Within this supersector, employment is growing at a rapid pace
with investment at its top. Food services and drinking places in
fact saw job expansion - increasing by 38,000 in May and by
337,000 over the past year - riding on a robust
However, this is a blinkered picture and the situation is very
different overall. After four months of improving employment
trend, the May job report came as a major blow for the
hospitality and leisure industry. The latest monthly economic
report released by the U.S. Bureau of Labor Statistics indicates
that we are not yet out of the woods.
The number of persons marginally attached to the labor force
(persons who want a job, have searched for work during the last
12 months, were available to take a job during the reference
week, but had not looked for work in the past 4 weeks)declined
sharply by 8.3% on a year-over-year basis to 2.2 million. This is
indicative of a still gloomy American economy where people are
losing hope once again and giving up their job search. Moreover,
the labor force participation rate has declined by 0.4 percentage
point over the year.
It is hard for the leisure and hospitality supersector to hide
the dark truth with their outward enthusiasm. As far as the
latest job data goes, halfway through 2013, a significant
reduction in the unemployment rate looks ambitious.
We believe the excess demand in the hotel industry, driven by
a lack of significant new lodging supply, is far from
sustainable. While demand growth has outpaced supply growth in
the last few years, the instability in the job market will pose a
renewed threat to this booming sector. In light of these factors,
high investment in the hotel industry can prove to be too
CHOICE HTL INTL (CHH): Free Stock Analysis
STARWOOD HOTELS (HOT): Free Stock Analysis
INTERCONTL HTLS (IHG): Free Stock Analysis
MARRIOTT INTL-A (MAR): Free Stock Analysis
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