US Tourism Bust: Summer Hotel Occupancy Saw Second-Largest Drop Since Recession

For the first time since Q3 2016, growth in quarterly demand for hotel rooms in the US has dropped; in fact, posting the second largest decline since the 2008 financial crisis, alarm bells are going off across their leisure and hospitality industry.

To be sure, some of  the decline in Q3 2018 occupancy can be explained by unfavorable comps to Q3 2017 when hurricanes struck markets in Florida and Texas, according to data from real estate investment firm CBRE.

Houston, which experienced a devastating strike by Hurricane Harvey in 3Q 2017, had the most significant occupancy drop (11%) of any US city, according to CBRE. However, the data revealed that occupancy weakness was not only centered in Texas and Florida, but there were widespread slowdowns in the Midwest and East Coast cities such as Indianapolis, Charleston, Kansas City, and Washington, DC. 

CBRE said some hotels had declining traffic as average daily rates for these cities cratered year-over-year. Revenue per available room also dropped in 18 of the 60 markets CBRE monitors, almost doubled from Q2 2018.

In a separate report, top US hotel groups reported weaker than expected 3Q 2018 US growth in revenue per available room (RevPAR), causing some concern that a domestic slowdown is imminent. 

Marriott International posted North American RevPAR growth of just 0.6% for 3Q 2018. By comparison, Marriott saw RevPAR grow 1.9% worldwide over the same period.

"The surprise and disappointment for us in the third quarter was purely about U.S. RevPAR performance in September," which was down 1% for the month, said Marriott president and CEO Arne Sorenson. "It had an impact on third-quarter RevPAR [in North America], and it does affect our expectations for the fourth quarter."

Hyatt Hotels reported a 1.1% decline in RevPAR in the US for 3Q 2018 but said globally - RevPAR jumped 2.8%.

Patrick Grismer, Hyatt's then-CFO, told investors on a call in October that the company "did see better performance out of our international owned and leased properties from a RevPAR growth perspective than we did for our U.S.-based owned and leased hotels." 

Grismer, who has since left the company to become CFO at Starbucks, added that Hyatt expects "the U.S. will be a bit softer" in 2019. 

Hilton also said 3Q 2018 domestic RevPAR growth is slowing down, as its international markets were doing better. The company reported a relatively modest US rise of 1%, while Hilton's total RevPAR was up 2% globally in the quarter.

Hilton president and CEO Chris Nassetta said, "while one market is slowing -- in this case, the U.S. -- all of our international markets continue to pick up." That pick up, however, won't last long if China's economy indeed enter contraction as many expect it will.

If the disappointing hotel data was not enough to suggest a 2019 slowdown is assured, recently the US Travel Association warnedin a new report that US domestic travel is about to "level off" after achieving 105 straight months of overall expansion. The report indicated a "perfect storm" of factors is brewing that is currently suppressing international demand for travel to the US.

The organization noticed a strong dollar had been one of the significant factors in deterring foreigners from visiting. Another issue presented, in the report, is the global slowdown and political uncertainties in Asia, Europe, and Latin America spurred by the trade war.

"We're seeing something of a perfect storm of factors that could suppress international demand for travel to the U.S.," said David Huether, U.S. Travel senior vice president for research. "The U.S. dollar has been on another very robust strengthening trend since April of this year, while the global economy has been cooling off considerably overall. That, coupled with political uncertainty in Europe and rising trade tensions, is a bad-news recipe for inbound travel."