NEW YORK— In an overall positive U.S. lodging industry forecast today, PricewaterhouseCoopers said ADR and RevPAR growth would perform strongly in 2006, but start to slow in 2007 and 2008. Demand for rooms was more than double supply growth in 2006, but by 2008 the positive picture starts to change with increases in supply growth edging out expected increases in demand. “ADR growth is forecast to rise 6.8% in 2006, twice the rate of inflation, before moderating to 5.9% growth in 2007 and 5.5% in 2008,” Bjorn Hanson, principal in the PwC hospitality and leisure practice, told the lodging security analysts and industry consultants assembled for the annual review. While a very strong performance, it wasn’t a record-breaking performance for ADR. “RevPAR growth is forecast to jump 8% in 2006, which is the second highest rate of growth since 1984, following 2005’s record 8.5% jump,” Hanson noted. “RevPAR growth also slows in each of the next two years, 5.9% and 5.4%, respectively.” Contrary to many observers’ perceptions, annual increases in demand growth are not a permanent condition, Hanson observed. To the contrary, demand growth is in many ways fragile. “The third quarter of 2006, in fact, was a bit scary with supply growth greater than demand growth, a trend that will become more apparent in the next few years,” he said. One way to analyze the strength of the market is to understand the percentage of RevPAR growth that comes from occupancy gains and the percentage attributable to ADR growth. In 2006, 85% of the RevPAR increase is forecast to come from the ADR contribution, 15% from occupancy. By 2008, however, 100% is forecast to come from ADR and 0% from the occupancy contribution. “This suggests that the industry at that point will be moving toward the end of the cycle,” Hanson cautioned, “though the cycle still has a way to go.” The greater the ADR contribution to RevPAR growth, meanwhile, the greater the industry’s profitability. Given this, PwC forecasts record levels of profits in both 2006 and 2007. Specifically, the industry is on track to earn $25.3 billion in profits in 2006, up from $22.6 billion in 2005. Profits in 2007 are forecast to be $27.4 billion. “So many other industries would be thrilled to have this kind of profitability,” Hanson noted. Describing it as his pet peeve, Hanson cited—as he has in recent years—the industry’s continuing use of surcharges as a way of generating revenue. Hanson, in fact, displayed a list of 19 such surcharges, the most grievous to his mind being mini-bar restocking charges and the daily resort amenity fees tacked on to the daily hotel folio. While these charges constitute a highly profitable additional revenue source, Hanson questioned their fairness. “Take the mini-bar restocking charge. It means that already highly-priced can of soda gets even more expensive.”
Bjorn Hanson