The U.S. Economic Recovery: Chain Scale Segments, Top 25 Markets, Demand Segments and Profits

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1 NEW YORK UNIVERSITY School of Continuing and Professional Studies Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management The U.S. Economic Recovery: Chain Scale Segments, Top 25 Markets, Demand Segments and Profits The Fourth in a Series of NYU Tisch Center Economic Briefings February 2010

2 Steven M. Lambert, M.A. Director of Administration and Industry Relations NYU Tisch Center

3 Bjorn Hanson, Ph.D. Clinical Associate Professor NYU Tisch Center

4 Agenda 1. U.S. Recessions 2. U.S. Lodging Industry: Cycles and Performance 3. Analysis of U.S. Lodging grecoveries 4. U.S. Lodging RevPAR Trends: Implications for this Recovery 5. Two RevPAR Recovery Analyses 6. RevPAR Forecasts 7. Structural Changes 8. Conclusions

5 Section 1 U.S. Recessions

6 U.S. Recessions Dates Duration Aug to March 1933 May 1937 to June 1938 Feb to Oct Nov to Oct months 13 months 8 months 11 months July 1953 to May months Aug to April 1958 April 1960 to Feb Dec to Nov Nov to March 1975 Jan to July 1980 July 1981 to Nov July 1990 to March 1991 March 2001 to Nov December 2007 to Feb *To date Source: National Bureau of Economic Research 8 months 10 months 11 months 16 months 6 months 16 months 8 months 8 months 26 months*

7 For further information on The U.S. Economy, the Stock Market and its Effect on the Lodging Industry, please refer to the Tisch Center NYU February Podcast at:

8 Section 2 The U.S. Lodging Industry: Cycles and Performance Rl Relative to Recessions

9 Long-Term U.S. Occupancy Occupancy Percentage 95% 90% % Long-Term Trend 63.34% (81 Years) 1987 to 2007 Trend 62.7% (20 Years) 85% 80% 75% 70% 65% % % % 60% 55% 50% % % % % '00 '03 '06 ' % Sources: PricewaterhouseCoopers LLP (1928 to 1986 and 2008), Smith Travel Research (1987 to 2009). Sources: PricewaterhouseCoopers LLP (1928 to 1986 and 2008), Smith Travel Research (1987 to 2009)

10 Timeline of Recessions & Historic Events 1962 Cuban Missile 2002 U.S. invasion Ci Crisisi of Iraq Korean 1963 Oil Embargo 1982 War Ends 1991 JFK Falklands War Persian Gulf War Assassinated 2003 SARS First domestic jet airline 1963 LBJ Expands War in Vietnam 1979 Iranian Oil Day War in Crisis Middle East 1987 Black Monday 1991 USSR Collapse 1995 Oklahoma City Bombing 1991 Yugoslav Wars 2001 September 11 th Attacks 2008 H1N Lehman Brothers Chapter Bear Stearns Collapse

11 U.S. Lodging Demand and Recessions Source: National Bureau of Economic Research & Smith Travel Research

12 U.S. Recessions and Lodging gcycles U.S. Recessions Months Lodging Cycles Months Dec to Nov Feb to Feb Nov to March Aug to May Jan to July Oct July 1981 to Nov to May July 1990 to March Feb to March March 2001 to Nov Sept to Sept Dec 2007 to Feb Source: Smith Travel Research and National Bureau of Economic Research

13 Section 3 US U.S. Lodging Recoveries

14 Definitions of Recovery 1. Return to a prior trend line 2. Favorable trend following a trough 3. Return to a prior performance level

15 3. Return to a prior performance level Years from trough to recovery Years from from trough to recovery Years from prior peak to recovery Years from prior peak to recovery 2/5 years

16 Total U.S. Lodging Industry

17 Total U.S. Occupancy 1969 Recession 1991 Recession 2007 Recession Recession 1980 Recession 2001 Recession Indexed Occ cupancy Perc centage Years Prior to Years Past Source: Smith Travel Research and PricewaterouseCoopers

18 Total U.S. Nominal ADR 1991 Recession 2001 Recession 1973 Recession 1980 Recession 2007 Recession Indexed Ave erage Daily Rate $ Years Prior to Years Post Source: Smith Travel Research and PricewaterouseCoopers

19 Total U.S. Real ADR 1991 Recession 2001 Recession Recession 1980 Recession 2007 Recession Indexed Ave erage Daily Rate $ Years Prior to Years Post Source: Smith Travel Research and PricewaterouseCoopers

20 Total U.S. Nominal RevPAR 1991 Recession 2001 Recession 1973 Recession 1980 Recession 2007 Recession evpar $ Indexed R Years Prior to Years Post Source: Smith Travel Research and PricewaterouseCoopers

21 Total U.S. Real RevPAR 1991 Recession 2001 Recession 1973 Recession 1980 Recession 2007 Recession Indexed RevPAR $ Years Prior to Years Post Source: Smith Travel Research and PricewaterouseCoopers

22 Total U.S. Demand 1991 Recession 2001 Recession 1973 Recession 1980 Recession 2007 Recession Years Prior to Years Post Source: Smith Travel Research and PricewaterouseCoopers

23 Total U.S. Supply 1991 Recession 2001 Recession 1973 Recession 1980 Recession 2007 Recession Years Prior to Years Post Source: Smith Travel Research and PricewaterouseCoopers

24 Total U.S. Supply Change Per rcent Source: Smith Travel Research and PricewaterouseCoopers

25 US U.S. Lodging Chain Scale Segments

26 Graphs Provided For: Total U.S. Luxury Upper Upscale Upscale Midscale with Food and Beverage Midscale without Food and Beverage Economy Top 25 Markets Graphs Of: Occupancy Nominal Average Daily Rate Real Average Daily Rate Nominal RevPAR Real RevPAR Supply Supply Percentage Change Demand

27 Luxury Occupancy 2007 Recession 2006: 71.5% 4/8 years Recession 1991 Recession Indexed Occ cupancy Perc centage 1997: 74.1% 1988: 67.1% 1.5/4.5 years Years Prior to Years Post Source: Smith Travel Research

28 Luxury Nominal ADR 2007 Recession 2001 Recession 1991 Recession Indexed Ave erage Daily Rate $ 2007: $ /4.5 years 2000: $ :.25/1.25 years $ Years Prior to Years Post Source: Smith Travel Research

29 Luxury Real ADR 2007 Recession 2001 Recession 1991 Recession Indexed Ave erage Daily Rate $ 2000: $ : $ /4.5years Years Prior to Years Post Source: Smith Travel Research

30 Luxury Nominal RevPAR 2007 Recession 2001 Recession 1991 Recession 2007: $ evpar $ Indexed R 2000: $ : $ /5 years.5/1.5 years Years Prior to Years Post Source: Smith Travel Research

31 Luxury Real RevPAR 2007 Recession 2001 Recession 1991 Recession evpar $ 2/5 years Indexed R 2000: $ : $ /1.25 years Years Prior to Years Post Source: Smith Travel Research

32 Luxury Demand Millions : Recession 2001 Recession 1991 Recession : /1.25 years 2000: /1.5 years Years Prior to Years Post Source: Smith Travel Research

33 Luxury Supply Millions 2007 Recession 2001 Recession 1991 Recession : million /1.25 years 1994: million Years Prior to Years Post Source: Smith Travel Research

34 Luxury Supply Change 1988 Percent Source: Smith Travel Research

35 Upper Upscale Occupancy 2007 Recession 2001 Recession 1991 Recession pancy Perce ntage In ndexed Occu : 71.2% 5/7 years 2000: 72.2% 1.5/3.5 years 1991: 66.2% Years Prior to Years Post Source: Smith Travel Research

36 Upper Upscale Nominal ADR 2007 Recession 2001 Recession 1991 Recession Indexed Ave erage Daily Rate $ 2008: 2000: $ $ /4.75 years 1990:.5/1.5 years $92.29 Years Prior to Years Post Source: Smith Travel Research

37 Upper Upscale Real ADR 2007 Recession 2001 Recession 1991 Recession 130 Indexed Ave erage Daily Rate $ : 110 $ : $ : 1.75/ 4.75 years 90 $ Years Prior to Years Post Source: Smith Travel Research

38 Upper Upscale Nominal RevPAR 2007 Recession 2001 Recession 1991 Recession 140 evpar $ Indexed R : $ : $ /5.25 years 1990: 1.25/2.25 years $ Years Prior to Years Post Source: Smith Travel Research

39 Upper Upscale Real RevPAR 2007 Recession 2001 Recession 1991 Recession evpar $ 2000: $ : $ /5 years Indexed R 1990: $ /1.50 years Years Prior to Years Post Source: Smith Travel Research

40 Upper Upscale Demand Millions 2007 Recession 2001 Recession 1991 Recession : : /3.75 years :.25/1.25 years Years Prior to Years Post Source: Smith Travel Research

41 Upper Upscale Supply Millions 1991 Recession 2001 Recession 1991 Recession 2008: : /3 1.5/3.55 years 2002: Years Prior to Years Post Source: Smith Travel Research

42 Upper Upscale Supply Change Per rcent Source: Smith Travel Research

43 Upscale Occupancy 2007 Recession 2001 Recession 1991 Recession : 70.3% I ndexed Occu upancy Perce entage : 70.8% 1994: 1/2 years 73.1% Years Prior to Years Post Source: Smith Travel Research

44 Upscale Nominal ADR 2007 Recession 2001 Recession 1991 Recession Indexed Ave erage Daily Rate $ 2000: $ : $ /4.5 years 1990:.5/1.5 years $68.59 Years Prior to Years Post Source: Smith Travel Research

45 Upscale Real ADR 2007 Recession 2001 Recession 2007 Recession 130 Indexed Ave erage Daily Rate $ : $ : $ /4.5 years 1990: $ Years Prior to Years Post Source: Smith Travel Research

46 Upscale Nominal RevPAR 2007 Recession 2001 Recession 1991 Recession 2007: $ /4 1.5/4.55 years evpar $ Indexed R 2000: $ : $ /1.25 years Years Prior to Years Post Source: Smith Travel Research

47 Upscale Real RevPAR 2007 Recession 2001 Recession 1991 Recession 135 evpar $ : $ : $ /4.5 years Indexed R : $ Years Prior to Years Post Source: Smith Travel Research

48 Upscale Demand Millions 2007 Recession 2001 Recession 1991 Recession : : : Years Prior to Years Post Source: Smith Travel Research

49 Upscale Supply Millions 2007 Recession 2001 Recession 1991 Recession : : : Years Prior to Years Post Source: Smith Travel Research

50 Upscale Supply Change rcent Per Source: Smith Travel Research

51 Midscale with F&B Occupancy I ndexed Occu upancy Perce entage 2006: 59.5% : 60.3% 2007 Recession 2001 Recession 1991 Recession 3/6 years : 62.6% 4/6 years Years Prior to Years Post Source: Smith Travel Research

52 Midscale with F&B Nominal ADR 2007 Recession 2001 Recession 1991 Recession Indexed Ave erage Daily Rate $ : 2000: $88.33 $ /4 years 1991: $ Years Prior to Years Post Source: Smith Travel Research

53 Midscale with F&B Real ADR 2007 Recession 2001 Recession 1991 Recession Indexed Ave erage Daily Rate $ : 2000: $84.92 $ /4 years 1991: $ Years Prior to Years Post Source: Smith Travel Research

54 Midscale with F&B Nominal RevPAR 2007 Recession 2001 Recession 1991 Recession evpar $ : $ : $ /4.5 years Indexed R : 1.5/2.5 years $ Years Prior to Years Post Source: Smith Travel Research

55 Midscale with F&B Real RevPAR Recession 2001 Recession 1991 Recession evpar $ Indexed R : 2000: $49.13 $ /4.5 years 1990:.5/1.5 years $ Years Prior to Years Post Source: Smith Travel Research

56 Midscale with F&B Demand Millions 2007 Recession 2001 Recession 1991 Recession : : : /2.25 years Years Prior to Years Post Source: Smith Travel Research

57 Midscale with F&B Supply Millions 2007 Recession 2001 Recession 1991 Recession : c : 2000: /2.5 years 1994: Years Prior to Years Post Source: Smith Travel Research

58 Midscale with F&B Supply Change rcent Per Source: Smith Travel Research

59 Midscale Without F&B Occupancy 2007 Recession 2001 Recession 1991 Recession : 66.10% Indexed Occ cupancy Perc centage % 15/5 1.5/5.55 years 1989: 65.9%.25/2.25 years Years Prior to Years Post Source: Smith Travel Research

60 Midscale Without F&B Nominal ADR 2007 Recession 2001 Recession 1991 Recession 135 Indexed Ave erage Daily Rate $ : $ : 1.5/2.5 years 1990: $67.51 $ Years Prior to Years Post Source: Smith Travel Research

61 Midscale Without F&B Real ADR 2007 Recession 2001 Recession 1991 Recession Indexed Ave erage Daily Rate $ : $ /1.25 years 1990: $ Years Prior to Years Post Source: Smith Travel Research

62 Midscale Without F&B Nominal RevPAR 2007 Recession 2001 Recession 1991 Recession 135 evpar $ Indexed R : $ /3.5 years 2000: $ : $ Years Prior to Years Post Source: Smith Travel Research

63 Midscale Without F&B Real RevPAR 2007 Recession 2001 Recession 1991 Recession evpar $ Indexed R 2007: $ /4.25 years 2000: $ : $38.60 Years Prior to Years Post Source: Smith Travel Research

64 Midscale Without F&B Demand Millions 2007 Recession 2001 Recession 1991 Recession : : : Years Prior to Years Post Source: Smith Travel Research

65 Midscale Without F&B Supply Millions 2007 Recession 2001 Recession 1991 Recession 2008: : Years Prior to Years Post Source: Smith Travel Research

66 Midscale without F&B Supply Change rcent Per Source: Smith Travel Research

67 Economy Occupancy 2007 Recession 2001 Recession 1991 Recession Indexed Occ cupancy Perc centage : 58.5% 1989: 64.7% 2005: 57.4% 3/6 years 2/5 years Years Prior to Years Post Source: Smith Travel Research

68 Economy Nominal ADR 2007 Recession 2001 Recession 1991 Recession 120 ate $ Indexed Ave erage Daily R : $ : $ : $ /2.75 years.5/4.5 5 years Years Prior to Years Post Source: Smith Travel Research

69 Economy Real ADR 2007 Recession 2001 Recession 1991 Recession Indexed Ave erage Daily Rate $ 1991: $ : $ :.5/1.5 years $46.07 Years Prior to Years Post Source: Smith Travel Research

70 Economy Nominal RevPAR 2007 Recession 2001 Recession 1991 Recession 2007: $30.62 evpar $ Indexed R 2000: $ /3.5 years 1989: $ /5.25 years Years Prior to Years Post Source: Smith Travel Research

71 Economy Real RevPAR 2007 Recession 2001 Recession 1991 Recession evpar $ Indexed R 2007: $ : $ /4.5 years 1989: $ /4.75 years Years Prior to Years Post Source: Smith Travel Research

72 Economy Demand Millions 2007 Recession 2001 Recession 1991 Recession : : /6 years 1990: Years Prior to Years Post Source: Smith Travel Research

73 Economy Supply Millions : Recession 2001 Recession 1991 Recession : : /1.5 years Years Prior to Years Post Source: Smith Travel Research

74 Economy Supply Change rcent Per Source: Smith Travel Research

75 Top 25 Markets

76 Top 25 Markets Occupancy 2007 Recession 2001 Recession 1991 Recession Indexed Occ cupancy Perc centage : 68.02% 2/5 years : % 104 2/4.25 years 1990: % Years Prior to Years Post Source: Smith Travel Research

77 U.S. Top 25 Markets Nominal ADR 2007 Recession 2001 Recession 1991 Recession 135 Indexed Ave erage Daily Rate $ : $ : $ : $ /4.5 years Years Prior to Years Post Source: Smith Travel Research

78 U.S. Top 25 Markets Real ADR 2007 Recession 2001 Recession 1991 Recession 140 Indexed Ave erage Daily Rate $ : $ : $ : $ /4 1.25/4.25 years Years Prior to Years Post Source: Smith Travel Research

79 U.S. Top 25 Markets Nominal RevPAR 2007 Recession 2001 Recession 1991 Recession 140 evpar $ Indexed R : $ : $ : $ /4.5 years.75/1.75 years Years Prior to Years Post Source: Smith Travel Research

80 U.S. Top 25 Markets Real RevPAR 2007 Recession 2001 Recession 1991 Recession 140 evpar $ Indexed R : $ : $ : $ /4.75 years.5/1.50 years Years Prior to Years Post Source: Smith Travel Research

81 U.S. Top 25 Markets Demand Millions : Recession 2001 Recession 1991 Recession 2000: : Years Prior to Years Post Source: Smith Travel Research

82 U.S. Top 25 Markets Supply Millions Recession 2001 Recession 1991 Recession : : : Years Prior to Years Post Source: Smith Travel Research

83 Top 25 Markets Supply Change Source: Smith Travel Research

84 US U.S. Top 25 Markets Cycles and Recoveries Relative to Total U.S. Lodging

85 115 Top 25 Markets and Total U.S. Occupancy Total U.S Total U.S Total U.S Top Top Top Indexed Occ cupancy Perc centage Years Prior to Years Post Source: Smith Travel Research

86 Top 25 Markets and Total U.S. Nominal RevPAR Total U.S Total U.S Total U.S Top Top Top Indexed RevPAR $ Years Prior to Years Post Source: Smith Travel Research

87 Top 25 Markets and Total U.S. Nominal ADR Top Total U.S Total U.S Top Total U.S Top Indexed Ave erage Daily Rate $ Years Prior to Years Post Source: Smith Travel Research

88 Top 25 Markets and Total U.S. Demand Millions Total U.S Total U.S Total U.S Top Top Top Years Prior to Years Post Source: Smith Travel Research

89 Top 25 Markets and Total U.S. Supply Millions Total U.S Total U.S Total U.S Top Top Top Years Prior to Years Post Source: Smith Travel Research

90 Total U.S. and Top 25 Market Supply Change Top 25 Markets Total U.S Source: Smith Travel Research and PricewaterouseCoopers

91 Section 4 US U.S. Lodging RevPAR PARTrends: Implications for this Recovery

92 Chain Scale Segment Recovery First to Recover 1991 Recession Occupancy Nominal ADR Real ADR Nominal RevPAR Real RevPAR Luxury Midscale w/o F&B Luxury Economy Last to Recover 1991 Recession Luxury Upscale Luxury Upper Upscale Occupancy Nominal ADR Real ADR Nominal RevPAR Real RevPAR Midscale w/f&b Upscale First to Recover 2001 Recession Midscale w/f&b Upper Upscale Midscale w/f&b Economy Occupancy Nominal ADR Real ADR Nominal RevPAR Real RevPAR Midscale w/o F&B Midscale w/f&b Midscale w/o F&B Upscale Midscale w/o F&B Economy Midscale w/f&b Upper Upscale Last to Recover 2001 Recession Occupancy Nominal ADR Real ADR Nominal RevPAR Real RevPAR Upper Upscale Midscale w/o F&B Upper Upscale Luxury Economy Upper Upscale

93 Top 25 Market & Total US Recovery First to Recover 1991 Recession Occupancy Nominal ADR Nominal RevPAR Top 25 Markets Total US Top 25 Markets First to Recover 2001 Recession Occupancy Nominal ADR Nominal RevPAR Top 25 Markets Total US Top 25 Markets

94 Demand Segment Cycles and Recoveries

95 Demand Segments Cycle and Recoveries Order of decline in demand Business/Commercial Group/Convention SMERF Leisure Percentage decline of demand Group/Convention Business/Commercial SMERF Leisure Duration to Recovery (first to last) Leisure SMERF Business/commercial i Group/ Convention

96 Perverse Math Average Daily Rate $ percentdecline $ percent increase $150

97 Section Five: Two RevPAR Recovery Analyses

98 1. Long term RevPAR +3.1 percent 2. U.S. RevPAR peaked 2007 $ Assumed RevPAR trough 2010 $53.40 If RevPAR were to increase by 3.1 percent, recovery to 2007 levels would be 2017 (worst case) 4. U.S. RevPAR recovery has averaged 7.57 percent for 4 years post trough (since 1968) If RevPAR were to increase by 7.57 percent for four years, 3.1 percentthereafter thereafter, recovery to 2007 levels would be 2013 (best case)

99 Section 5 RevPAR Forecasts

100 U.S. Lodging grevpar Forecasts Source Smith Travel Research (3.2) 4.2 PKF Research (1.3) 5.9 PricewaterhouseCoopers (1.5) *Forecasts as of February 13, 2010 Source: Individual organizations

101 Section 7 Structural Changes

102 Structural Changes Demand

103 1987 value = Demand Elasticity and Correlation to Real GDP US Real GDP Lodging Demand (Room Nights Sold) '00 '01 '02 '03 '04 '05 '06 '07 '08 Sources: Sources: Lodging Lodging demand demand PricewaterhouseCoopers PricewaterhouseCoopers LLP LLP based based on on Smith Smith Travel Travel Research Research data; data; Real Real GDP- GDP- U.S. U.S. Bureau of Economic Analysis; Air travel demand - Air Transport Association. Bureau of Economic Analysis; Air travel demand - Air Transport Association.

104 Structural Changes Profits

105 Long Term Occupancy Levels and Profits Income Before Income Taxes, Billions of Dollars Occupancy Percentage $30 68% $25 66% $20 64% 62% $15 60% $10 58% $5 56% $0 54% 52% ($5) Aggregate Profits Occupancy 50% ($10) % Sources: Smith Travel Research Note: STR change in method in 2002 Sources: Smith Travel Research, 2009 NYU Tisch Center Estimate

106 U.S. Lodging Industry Net Income as a Rti Ratio to Revenue Sources: Smith Travel Research, 2009 NYU Tisch Center Estimate

107 Section 7 Comments & Conclusions

108 1. Lodging Industry forecasts are more challenging now than ever before record revisions 2. Comparable recessions and long term trends indicate this recovery will be longer and less robust tthan average 3. TheU U.S. LodgingIndustryspendsmore spends time in declines than in recoveries 4. During declines, occupancy usually precedes average daily rate During recoveries, occupancy usually precedes average daily rate 5. Industry RevPAR is unlikely to recover to 2007 levels until 2013 or later

109 6. Luxury and Upper Upscale demand has declined during all recessions, Economy during all but one recession Upscale and Midscale without Food and Beverage demanddeclined declined only duringthecurrent recession Midscale with Food and Beverage has experienced a long term trend of demanddeclinedecline 7. The Top 25 Markets are much more volatile than the U.S. with earlier and greater declines, but frequently with earlier and stronger recoveries 8. Luxury may experience a favorable percentage increase, but is likely to be among the last to recover 9. Upscale and Midscale without Food and Beverage will likely emerge as stronger performers based on absolute performance levels l

110 10. Leisure demand will remain favorable but is based on discounting especially ill for Luxury 11. Group/convention demand is likely to recover after business/commercial 12. It is probable that there will be a structural resetting of lodging demand less demand relative to GDP 13. It is probable bbl that t the industry will emerge with structural resetting of profitability higher profit levels relative to occupancy and RevPAR

111 NYU Tisch Center Programs Undergraduate Degrees: B.S. in Hotel and Tourism Management B.S. in Sports Management Graduate Degrees and Graduate Certificates: M.S. Hospitality Industry Studies M.S. Sports Business M.S. Tourism and Travel Management Continuing Education and Professional Certificates: FoodandBeverage Operations Hotel Operations Meeting, Conference, and Event Management For additional information:

112 32nd Annual NYU International Hospitality Industry Investment Conference June 6-8, 2010 Hosted by the New York University Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management Location: o The New York Marriott Marquis, New York City For additional information:

113 NEW YORK UNIVERSITY School of Continuing and Professional Studies Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management The U.S. Economic Recovery: Chain Scale Segments, Top 25 Markets, Demand Segments and Profits The Fourth in a Series of NYU Tisch Center Economic Briefings February 2010

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