NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: Leisure OffsetsWeak Corporate Transient Demand (What U.S. Lodging Companies Are Saying)
https://www.fitchratings.com/site/re/887763
Fitch Ratings expects mid-single digit U.S. leisure transient lodging demand growth to decelerate to the low single digits against the backdrop of heightened geopolitical risk, US dollar (USD) strength, growth in alternative lodging accommodations and Zika-virus related health concerns. Lodging companies have cited relative leisure strength as an offset to weak corporate transient demand. This, in combination with weak corporate and decelerating group demand, supports our expectation for RevPAR to turn negative in 2018.
Leisure transient demand is further removed but not immune to the negative effects of lower business investment spending weighing on corporate transient demand. Lower corporate capex spending generally coincides with less business travel demand, but it is also a leading indicator for employment. Lodging companies have cited low unemployment rates as a key factor benefiting healthy leisure transient demand.
Hotel brands have encouraged consumer price shopping by not adopting cancellation policies commonly found in other travel sectors, such as airlines and cruise providers. Websites that facilitate price shopping and last minute bookings have increased cancellation rates for lodging companies, making it difficult for hoteliers to forecast occupancy and push room rates. The industry has made some progress toward instituting stricter cancellation policies (i.e. two days ahead vs. same day), but it remains a long way from collecting payment at the point of sale.
The strong dollar has increased the cost of lodging for international travelers to the U.S. Dollar strength and economic softness in key North American, South American and European feeder countries have conspired to lower inbound international U.S. visitation. More Americans are taking advantage of the strong USD to travel overseas, in some cases at the expense of domestic travel. USD strength has been an issue for several years, although the Brexit vote rekindled the issue following a brief period of USD stability.
And growing Zika-virus related health concerns could add to consumer angst and weigh on travel demand, including leisure. In the U.S., Zika has been confined to a small submarket of Miami, so far. Tourism has fallen sharply in places where the spread is more rampant, such as the Caribbean.
We project that US RevPAR will increase by 3%-4% during 2016 and by 1%-2% during 2017, with monthly comparisons possibly turning negative during the latter half of the year. We expect 2018 to mark the first full year of RevPAR declines, assuming the historical six- to 12-month lag between occupancy and RevPAR declines holds.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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