The lunchtime lecture on Day Two of the 2017 Hotel Data Conference held earlier this month in Nashville, Tennessee, focused on what the hotel industry can learn from how the airline industry marks success.
It has always struck me as a little odd as to why far more emphasis is not placed on airline data as a predictor of hotel demand and average daily rate.
People getting on planes is the final chapter in a series of other beneficial economic indicators. Presumably obtaining shelter, warmth and food all precede seeking out travel agents or purchasing a computer to book online?
Perhaps in the hushed corridors of hotel companies there are numerous worker ants pouring over airline performance, as well as data from all manner of origins.
Changes to air lift must affect hotel occupancy, unless those hotel markets are near saturation. Although, I am sure it is not simply a case of if an airline announces a new route, with perhaps introductory reduced seat prices, hotels will jump on the opportunity to raise ADR until new supply fills in the gap between airline and hotel demand.
Over a delicious Nashville hot-chicken lunch at HDC, Charles de Gheldere, director of business intelligence services at International Air Transport Association, delved into what airline data might suggest as possible next steps for revenue managers.
His introductory remark was that airline-industry return on capital, its key performance indicator, was good in 2016. However, its return on investment remains below that of its cost of capital, while free cash flow, also good, was globally divergent, with North America doing better than the average. Europe, not so much.
Operating margins are good but falling, and there is additional pressure on margins as unit costs go up—currently a 5% increase year to date, De Gheldere said.
And while debt in the airline industry still ranges from investment grade to weak, “there are signs of the stabilization of yields, and financial markets and airline CFOs are confident,” De Gheldere said.
Which, unless I am missing something, means the overall tourism, hotel and hospitality business should be equally confident, and, indeed, that was the overall feeling at HDC.
Confidence, yes, but also a requirement to be even savvier than ever.
“We’re upgrading our forecasts for 2017, from an operating margin forecast of 6.6% to 7.7%. Passenger numbers are up 8%, which is the strongest growth in 12 years,” De Gheldere gushed.
Amanda Hite, president and CEO of STR, earlier that day announced to the conference a revision of the full-year 2017 demand forecast from 1.7% to 2%, although she added the ability of hotels to push ADR, because of that higher demand, had not come to fruition.
If airline profitability is a decent gauge to potential hotel profitability, there also is good news, at least in some parts of the world.
De Gheldere said half of all airline-industry profitability is from North America, while most of the other half is from Europe and Asia-Pacific
STR, the parent company of Hotel News Now and the organizer of HDC, tracks a great deal of market trends and information that have direct and indirect effects on the hotel industry—manufacturing output, oil prices and stock market performance, as well as airline data.
At another HDC session, titled “Cause and effect: How the broader economy influences hotel performance,” Chad Church, VP of client services at STR, outlined the almost direct correlation between U.S. hotel demand and U.S. revenue-per-passenger miles.
(Slide: STR)
That parallel does not, however, shine true when inflation-adjusted U.S. ADR is compared with average U.S. domestic air fares. Air fares are falling, and while ADR also showed a dip, it is not nearly as pronounced.
That makes sense in regards to Hite’s comments and prediction.
It is very rare, at least from my observations or choices of destination, that I sit on a plane nowadays that is not 100% or 95% full.
That might just mean there are fewer planes in the sky, and the increased demand for travel has to go where the airlines dictate.
Hoteliers never want to drop rate, we know.
Air-seat economics might have other variable ingredients such as connection-flight economics of hub airports, fares changing due to time of day, etc.
Email Terence Baker or find him on Twitter.
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