STR, Tourism Economics Say Cost of Living Impacts Hotel Performance

The hotel industry’s performance is being impacted by reduced travel volume caused by the rising cost of goods and services.

So said STR, a provider of data, analytics and insights for the global hospitality industry, and Tourism Economics, a provider of intelligence on the economy and the travel sector, in a Monday (June 3) press release about their 2024-25 U.S. hotel forecast.

The companies have downgraded their forecast, pointing to lower-than-expected hotel performance so far in 2024 and lessened growth forecasts for the rest of the year, according to the release.

In their forecast, the companies downgraded their projected gains in average daily rate (ADR) by 1.0 percentage point and in revenue per available room (RevPAR) by 2.1 percentage points, the release said. They now expect occupancy for the year to decline, after previously expecting year-over-year growth.

The companies also made downward adjustments in their projections for hotel performance in 2025, with their projected gains in ADR down 0.8 percentage points and in RevPAR down 0.9 percentage points, per the release. They left their occupancy growth projection for 2025 in place.

During the first four months of 2024, STR and Tourism Economics saw a “bifurcation in hotel performance” that they “don’t believe will abate soon,” Amanda Hite, president of STR, said in the release.

“The increased cost of living is affecting lower-to-middle income households and their ability to travel, thus lessening demand for hotels in the lower price tier,” Hite said. “The Upscale through Luxury tier is seeing healthy demand, but pricing power has waned given changes in mix and travel patterns and to a lesser extent, economic conditions.”

Aran Ryan, director of industry studies at Tourism Economics, said in the release that both middle- and lower-income consumer spending and business investment have been pressured by interest rates that are still elevated and wage growth that has slowed.

“Looking beyond this near-term pull-back in demand at lower-tier properties, we expect moderate travel growth to resume, supported by a tempered economic expansion and the continued rebound of group, business and international travel,” Ryan said.

During an April earnings call, Wyndham Hotels & Resorts CEO Geoff Ballotti said the hotel chain has some “concern” about middle-income guest traffic weighing on the summer travel season.

“But what we’re seeing is that that middle-income guest is more employed, and we look at their wages and their savings, it’s they’re higher than they were back in pre-COVID levels,” Ballotti said during the April 25 call. “Their home prices are up, their stocks are up, their deposit levels are stable and they’re in good shape.”

Hotel chain Marriott International said May 1 during its quarterly earnings call that it saw its RevPAR increase 4.2% year over year during the first quarter, driven largely by growth in international markets.

“While overall industry RevPAR growth is normalizing post-COVID, we continue to gain RevPAR index across our portfolio and increase our market share of global hotels,” Marriott President and CEO Anthony Capuano said during the call.