April 06, 2011

The fundamentals of sustainable hotel demand growth

Before the hotel industry can complete its recovery, it needs both legs firmly on the ground. Like a flamingo standing on just one leg, low rates allowed the first leg of demand’s recovery to be placed on the ground. Improving economic fundamentals will allow the second leg to come down, giving hotel managers the ability to raise rate.

The PKF Hospitality Research “Hotel Horizons” demand model is built to quantify the movements of economic and hotel ADR variables to create an objective forecast of hotel demand. The economic variables used to predict demand can and do vary, but our research shows income and employment dominate other economic factors.

Another way to interpret this is that other potentially important drivers—such as corporate profits, commodity prices, enplanements, etc.—feed income and employment levels in the area, which in turn inform hotel demand. The exceptions occur:

- in areas where demand drivers are largely one-sided, such as destination markets and commodity producing markets; or

- when one factor becomes out of sync, as we observed with the housing crash in Florida and Southern California.

By knowing what economic variables have the most impact on hotel industry growth or decline, managers can better understand the underlying fundamentals behind their hotels’ performances.

Get the full story at HotelNewsNow.com

Read also "The curious mismatch between hotel pricing and economic recovery"