Hotel Occupancy and Revenue Per Room
The Issue
The Post and Courier recently published and article on the regional hotel occupancy forecast for 2011. We are not exactly sure how they derived these numbers, but they are important enough in this community that we need to shed some light on the impact of these data.
I am not convinced there is going to be a rebound in occupancy levels with national growth recently being reported to be under 2 percent. Having said that, those results are probably statistically insignificant as a result of noise in the data. In addition, we always need to include this caveat in South Carolina hotel research: With any inkling of a hurricane, all bets are off. This is one reason that August, September and October tend to be very volatile months, with occupancy slipping from highs achieved in the first six months of the year.
Demand, Occupancy and Money: The Trifecta of the Hotel Business
To make forecasts in the hotel industry, a researcher needs historical occupancy data. My source is the venerable STR Global. There definitely is seasonality to these data, so I stay with the annual data which are adjusted slightly by STR at the end of each year.
I reviewed two data sets: occupancy and revenue per available room (RevPAR). I chose to compare three geographies; Charleston/West Ashley, the state of South Carolina and the entire nation (PDF). It appears that Charleston has done a better job of managing occupancy than the state as a whole, but has paid the price in a lower RevPAR. Instead, it opted for market share. In a market with declining demand, hotels need to create and execute a strategy to grab market share. However, if hoteliers believe there is going to be a measurable increase in demand, keeping prices high likely would be the winning strategy. As capacities creep to more than 80 percent, they can demand higher room rates. Unfortunately, this is not likely the baseline scenario going into 2011.
Community Economic Impact
A back of the envelope calculation nets the following impacts: On average there about 6,ooo hotel rooms in STR’s study area. A calculation using annual RevPAR, occupancy and days returns a gross annual income of $147 million. A small adjustment of just 1 percent in occupancy increases this number by $2.1 million. In 2005 the average daily rate, sightly different than RevPAR, was $128.61 with occupancies at 70 percent. Those numbers result in $51.5 million positive difference in revenue.
Therefore, from a community standpoint, it is important to consider the effect policy has on these numbers. As we can see, small changes in the customers perception of Charleston and/or the state of the economy can and do have significant impact occupancy and room rates, which ultimately affect the community as a whole.
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