The cost of hotel rooms rose almost 17% on the year, according to the consumer price index. But the truth is more complex
Hotel costs appear to be soaring, but travel experts warn that looks may be deceiving.
The cost of lodging away from home, including hotel and motel rooms, increased nearly 8% between May and June, according to the latest edition of the consumer price index released this week by the Bureau of Labor Statistics. On an annual, unadjusted basis, hotel rooms rose almost 17%.
Those figures could be somewhat misleading, given that a year ago travel had all but drawn to a halt as a result of the COVID-19 pandemic. Comparing the June 2021 CPI figures with June 2019 -- arguably, a fairer comparison -- shows that hotel prices are roughly flat compared to where they were pre-pandemic.
As such, the CPI data didn't spur hotel stocks much higher. Shares of major hotel operators including Marriott (MAR), Hilton (HLT), Hyatt (H)and InterContinental Hotels Group (IHG.LN) dropped by around 2% as of Tuesday's close, though all are up significantly year-to-date.
Other metrics show a similar trend, said Seth Borko, a senior research analyst with travel industry outlet Skift. The hotel industry focuses on average daily rates, or ADRs, as a metric to gauge where pricing is moving across the sector.
As of May, the average daily rate across the U.S. hotel industry was $117.69, which was actually nearly 11% lower than May 2019 levels, according to data from hotel industry market data firm STR (CSGP).
"In past crises like in 2008, there was no pricing discipline -- everyone cut their rates just to drive volume," Borko said. "This time, people have held on because they realized these crazy, extenuating circumstances will hopefully pass."
Put another way: Hotel operators are maintaining their pricing, or even returning to 2019 levels, rather than offering discounts to drive traffic to their properties.
Milwaukee vs. Miami
Not all destinations have struggled to rebound from the pandemic. Data from travel-advertising technology company Koddi show that hotel demand has soared for a handful of destinations in particular, including resorts, beaches and other outdoor destinations. Anaheim, Calif., home to Disneyland, has seen the largest growth in demand year to date, with a 790% increase.
This is less the case for smaller towns that don't typically cater to tourists or places where business travelers represent a significant share of the bookings in a typical year.
"If you go to a business hotel in Milwaukee, you should probably expect a discount," Borko said. "And if you're going to a Florida beach, you should expect to actually pay a premium."
That's good news, potentially, for families aiming to travel across the country just to visit relatives, but bad news for anyone hoping to relax on a long-awaited tropical getaway.
A recent report from the American Hotel and Lodging Association (AHLA) found that 21 of the top 25 hotel markets in the country are still in a recession or depression with the revenue per room down by as much as 70% compared to 2019 levels.
"There are still some deals to be found in cities, which haven't seen as much of a tourism recovery," said Jordan Staab, CEO of SmarterTravel.
The four markets that were the exceptions in the AHLA report were Phoenix, Virginia Beach, Tampa and Miami. In Miami in particular, hotel prices are now vastly exceeding 2019 levels, with resorts earning 31% more per available room as of May compared with two years ago.
The hotel industry faces capacity constraints
One factor that explains why hotel costs may be hitting new peaks in markets like Miami is that the hotel industry is still working to resume normal operations.
During the pandemic, many hotels opted to shut down wings of their properties and lay off staff to weather the downturn in travel. For instance, hotels have opted to continue cutting back on daily room cleanings (link) even as the economy rebounds.
Resuming operations at full capacity doesn't happen overnight, meaning that demand can easily overwhelm supply.
"Supply can be a lot more dynamic in the airline industry because if you have a really hot route, you can bring planes that were flying other routes over," Borko said. "They can reshuffle their supply."
"But if all of a sudden demand for Miami is two times what it was a year ago?" Borko said it's far more difficult to increase supply. Hence, the price spikes.
That is where a company like Airbnb (ABNB) comes in. Vacation rentals can absorb some of that excess demand, especially if local residents choose to add their properties to the platform to make some extra cash.
In turn, Airbnb and other property-rental platforms can work to offset some of the demand pressure that would normally drive hotel rates sky high.
-Jacob Passy; 415-439-6400; AskNewswires@dowjones.com
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07-15-21 1107ETCopyright (c) 2021 Dow Jones & Company, Inc.