We’re in the process at Hotel News Now of scheduling our travel for the last few months of the year this week, which gets me thinking about U.S. corporate transient demand. (How’s that for a transition?)
That’s been the No. 1 topic of interest on this latest round of quarterly earnings calls from the public hotel companies, and it’s an interesting indicator (or maybe it’s better described as a byproduct) of business confidence, which of course factors into GDP.
It was almost unanimous across the board of the big hotel companies that transient corporate demand was down—significantly in some cases—in the U.S. in the second quarter compared to the same period last year. This is problematic for hotels in general because transient demand is what drives overall growth, since transient rooms are booked at higher rates than group rooms. But it’s also pretty fickle. When companies cut down on business travel, send fewer people to meetings or industries consolidate, that corporate transient demand piece is affected. What’s more, this is an issue that affects companies with more offerings in the upper-midscale to upscale segments.
This led many of the biggies to revise their full-year revenue-per-available-room outlook down.
Hilton Worldwide Holdings was one of those, though President and CEO Chris Nassetta said he expects to see corporate transient business firm up in the back half of the year.
“Corporate America, whether it’s big companies, medium companies or small companies, we’re just seeing lower demand,” he said. “We’re still getting rate, so volumes are relatively flat and rates are up a little bit.”
Marriott International CEO Arne Sorenson got a little more specific. He said room sales from the company’s nearly 300 largest corporate customers weakened from 4% year-over-year growth in Q4 2015 to 2% in Q1 2016 and 1% in Q2.
The story was similar for Hyatt Hotels Corporation and Extended Stay America, where corporate sales grew by just 4% in the second quarter of 2016 compared to the same period in 2015, and down significantly from 13% growth in the first quarter of this year.
The same was true for real estate investment trusts like FelCor Lodging Trust, where President and CEO Richard Smith said the company mostly felt the hit in primary urban markets like New York City, Boston and Philadelphia; and for Host Hotels & Resorts and RLJ Lodging Trust, where corporate transient demand makes up more than 60% of the REIT’s overall transient segment.
So what will come of this? Companies are trying to shift business, likely to grow the less-lucrative leisure demand segment, but they’re also hopeful that corporate confidence in travel will pick up over the remainder of the year. At the same time, while demand may be down for this group, most CEOs said they were holding and even increasing rate.
Still, so much of this depends on GDP growth. But when that happens, hoteliers say they are ready.
“It will take an improvement in corporate investment,” said Host Hotels & Resorts President and CEO Ed Walter on the company’s Q2 call. “Corporate travel reacts quickly, both down and up.”
Do you feel the effects of this at your hotel? Let me know. Drop a note in the comments below, email me or let me know on Twitter @HNN_Steph.
Share of the week
Summertime means roller coaster season! Earlier this week, Wyndham Rewards provided nearly 200 kids from Big Brothers Big Sisters with free passes to Six Flags parks in Dallas, Los Angeles, Chicago, St. Louis and New England. It’s part of Wyndham Rewards’ partnership with Six Flags. Shown here is the group at Six Flags over Texas. Wheeeeeeeeeee!
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