HENDERSONVILLE, Tennessee—The United States economy continues to improve, and publicly traded companies have more cash on hand than ever before. This bodes well for travel—and air travel specifically. Load factors have been reported at a record high. In February (the latest data available from the Bureau of Transportation Statistics), the domestic load factor was 82.1%, and domestic carriers transported 45.5 million domestic passengers.
With these numbers at or near historic peaks it stands to reason that hotels near airports should also be doing well. In the first four months of this year, airport hotels sold nearly 27.2 million rooms—the most ever in this period, according to STR, which is parent company of Hotel News Now. Airport hotels are those in close proximity of an airport that primarily serve demand from airport traffic. Distance may vary.
The harsh winter that caused massive interruptions up and down the East Coast was one reason for this record demand. In January, room demand increased 6% over January 2013, according to STR data. Between 2010 and 2014, room demand for the first four months increased by nearly 4 million nights.
While demand has been strong, supply growth has been muted, in contrast to the rest of the U.S. hotel industry. In the beginning of 2011, STR reported 2,254 hotels in airport locations. In April 2014, that number was 2,297—an increase of 1.9% in just over three years. The lack of new supply drove occupancy up to 71.7%, from 62.4% year to date in 2010. In other words, for the first four months of this year, airport hotels sold more than seven of 10 room nights—a strong performance, especially when comparing this to the overall U.S. average of 60.8%.
With strong demand and occupancy comes strong pricing power, and airport hotels have recorded steady price increases over the last four years. In April of 2010, the year-to-date average daily rate was $89. In April 2014, it stood at $102, which is 4% higher than last year and approximately 14.6% higher than four years ago. Because of the healthy ADR and occupancy increases, revenue-per-available-room growth also has been strong (+5.6% in 2013).
Occupancy of airport hotels on weekends in 2013 was higher (71.8%) than on weekdays (68.9%). In contrast, weekday ADRs were higher ($101) than weekend ADRs ($89). This could be an indicator of the different customer groups frequenting an airport hotel, leisure on the weekend and less price-sensitive business travelers during the week.
Given the healthy occupancies and demand growth figures, we would fully expect more new supply. In the U.S. hotel industry no good data goes unpunished, and it is probably fair to assume there will be an influx of new rooms in 2015 and beyond. As investors look for new opportunities to deploy their capital, a location type with below average supply growth is attractive, which makes airports obvious targets for new development.
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