Group business performance beginning to trend up

The U.S. lodging industry made clear strides on the road to recovery in the first half of 2010. Occupancies are improving in most sectors and average room rates, though not yet growing in many markets, are beginning to flatten with hope for moderate improvement in the second half. Greater insight can be gained on the scope and position of the recovery by evaluating the type of business hotels are capturing and the pace of growth in different consumer segments. This article focuses on group business at upper end hotels (luxury and upper-upscale chains and upper tier independents)—where the industry stands today and what we can expect in the coming months.
As we have seen in the overall U.S. lodging industry, group occupancy has improved significantly over 2009. Through July 2010, occupancy at upper end hotels was up 6.9 percent from comparable 2009 levels. However, keep in mind that 2009 performance was severely depressed, making current year comparisons very easy. Twenty-one of the top 25 U.S. markets have experienced July YTD group gains—twelve markets enjoyed double-digit increases. In general, group occupancies have made a good comeback in the first half of 2010. Comparables will be somewhat tougher in the second half, so expect growth rates to moderate somewhat.
The average daily rate (ADR) story is another matter. July year-to-date group ADR at upper end hotels fell 5.2 percent from the same period in 2009. Keep in mind that group rates were not impacted nearly as significantly as transient rates in the downturn. Consequently, the upside growth in group ADR will likely come later than transient and will likely be lower in most markets. Group ADR declined in 24 of the 25 U.S. markets (Denver was flat), based on July 2010 year-to-date data. However, group ADR declines have been slowing recently in many markets and better pricing conditions are anticipated in the second half.
Comparing 2010 group performance to 2007—the last “normal” year before the downturn—provides good perspective on how much ground the industry has yet to make up. July 2010 year-to-date group occupancy at upper end hotels was down roughly 18 percent versus the same period in 2007, while ADR was down about 5 percent. Transient occupancy was down only slightly—just over 1 percent—while transient ADR was off nearly 13 percent.
Markets that typically capture a fairly large percentage of group business have shown varying degrees of success in 2010 versus 2007 figures. In Chicago, July 2010 year-to-date group occupancy at upper end hotels slid over 20 percent versus 2007, while ADR was off about 9 percent. San Francisco’s occupancy was lower by 16.3 percent and ADR was down about 7 percent. New York group occupancy declined 7.5 percent, while ADR was off 5 percent versus comparable period 2007. Clearly, group business—while showing improvement in 2010—has much ground to recover before returning to pre-downturn levels.
There are positive indications for group business for the balance of 2010 and into 2011. The U.S. Travel Association expects a 7 percent increase in meeting and convention spending for full year 2010. Also, anecdotal information from several sources indicates that group booking pace is picking up and looks positive for the fall season. As the summer leisure travel season draws to a close, STR will closely monitor the group business sector and its impact on industry performance. For many hotel operators, a successful fall group season can make or break the year. Hopefully, the progress we’ve begun in the first half of 2010 will continue into the second half and beyond—stay tuned.