Download What are the Prospects for a Recovery of Travel

2004 Economic Forecast for Innkeepers
U.S. Lodging Industry Historical
Perspective and Future Forecast
Presented to:
Massachusetts Lodging Association
Geoff Baekey
November 6, 2003
PwC
Topics
1. Recent lodging trends
2. Why is this cycle so different?
3. U.S. lodging industry forecasts
2
PricewaterhouseCoopers
1. Recent Lodging Trends
3
PricewaterhouseCoopers
U.S. 2002 Occupancy Was The Lowest
In The Past 31 Years
Occupancy Percentage
72%
70%
68%
66%
64%
62%
2001
59.7%
60%
2002
59.1%
58%
75
77
79
81
83
85
87
89
91
4
Sources: PricewaterhouseCoopers L.L.P. (1975 to 1986), Smith Travel Research (1987 to 2002)
93
95
97
99
01
PricewaterhouseCoopers
2002 U.S. Lodging Occupancy
2002 occupancy was 59.1%
Occupancy has been lower in only:
5 of the past 75 years
2 of the past 35 years
5
Sources: PricewaterhouseCoopers L.L.P. based on Smith Travel Research data
PricewaterhouseCoopers
Annual Average Daily Rate Declines In 2001 and
2002 Were The First In The Past 24 Years
Percentage Change From Prior Year
20%
Nominal ADR
15%
10%
5%
CPI
0%
-5%
2001
2.8%
2002
1.6%
2001
2002
-1.0%
-1.5%
68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02
6
Sources: PricewaterhouseCoopers L.L.P. (1967 to 1986), Smith Travel Research (1987 to 2002)
PricewaterhouseCoopers
Relevant Performance Year to Date September 2003
U.S. Lodging Market
Total U.S.
Occupancy
2003
2002
60.7%
60.9%
ADR
2003
$83.50
2002
$83.82
RevPAR
2003
2002
$50.67
$51.06
7
Sources: PricewaterhouseCoopers L.L.P. (1967 to 1986), Smith Travel Research (1987 to 2002)
Percent Change
Occ.
ADR
RevPAR
-0.3%
-0.4%
-0.8%
PricewaterhouseCoopers
Performance of Top 25 Markets
Anaheim-Santa Ana, CA
Atlanta, GA
Boston, MA
Chicago, IL
Dallas, TX
Denver, CO
Detroit, MI
Houston, TX
LA-Long Beach, CA
Miami-Hialeah, FL
Minn-St Paul, MN-WI
Nashville, TN
New Orleans, LA
New York, NY
Norfolk-VA Beach, VA
Oahu Island, HI
Orlando, FL
Philadelphia, PA-NJ
Phoenix, AZ
San Diego, CA
San Fran-San Mateo, CA
Seattle, WA
St Louis, MO-IL
Tampa-St Pete, FL
Washington, DC-MD-VA
Occupancy %
2003
2002
67.7
65.9
57.7
59.5
61.1
64.3
61.6
60.1
53.8
55.3
60.6
62.2
56.3
57.9
57.2
60.9
67.6
66.8
64.0
62.4
61.4
62.0
59.7
57.7
63.5
62.7
72.5
72.2
63.7
64.5
72.4
70.5
63.6
64.5
65.6
65.7
60.3
58.5
71.6
71.6
63.1
62.0
63.5
62.6
60.2
62.9
63.1
62.4
67.9
67.9
ADR $
2003
2002
92.44
92.22
74.11
77.02
115.43 122.86
101.57 101.96
74.16
76.92
74.56
76.19
77.99
78.64
72.85
74.66
91.41
92.59
108.05 104.74
81.36
84.65
74.58
73.65
107.98 115.67
158.98 167.53
83.07
80.54
115.18 113.62
84.56
88.17
92.78
96.40
94.50
94.25
112.80 110.92
117.08 124.20
93.60
94.40
73.37
72.77
82.37
82.74
110.89 110.74
RevPAR $
2003
2002
62.55
60.77
42.80
45.80
70.54
79.04
62.58
61.27
39.91
42.52
45.18
47.41
43.88
45.56
41.69
45.46
61.77
61.85
69.17
65.40
49.99
52.51
44.50
42.53
68.54
72.49
115.25
120.89
52.93
51.94
83.44
80.14
53.74
56.82
60.85
63.32
56.96
55.12
80.79
79.41
73.83
76.95
59.47
59.14
44.18
45.79
51.94
51.62
75.33
75.21
8
Sources: PricewaterhouseCoopers L.L.P. (1967 to 1986), Smith Travel Research (1987 to 2002)
Percent Change
Occ.
ADR
RevPAR
2.7
0.2
2.9
-3.0
-3.8
-6.6
-5.0
-6.0
-10.8
2.5
-0.4
2.1
-2.7
-3.6
-6.1
-2.6
-2.1
-4.7
-2.8
-0.8
-3.7
-6.1
-2.4
-8.3
1.2
-1.3
-0.1
2.6
3.2
5.8
-1.0
-3.9
-4.8
3.5
1.3
4.6
1.3
-6.6
-5.4
0.4
-5.1
-4.7
-1.2
3.1
1.9
2.7
1.4
4.1
-1.2
-4.1
-5.4
-0.2
-3.8
-3.9
3.1
0.3
3.3
0.0
1.7
1.7
1.8
-5.7
-4.1
1.4
-0.8
0.6
-4.3
0.8
-3.5
1.1
-0.4
0.6
0.0
0.1
0.2
PricewaterhouseCoopers
Profits Declined 25.3 Percent In 2001
And 15.5 Percent In 2002
Income Before Income Taxes, Billions of Dollars
$30
$25
$22.5
$20
$16.8
$14.2
$15
$10
$5
$0
-$5
-$10
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
Note:
Smith Travel Research has a different calculation method for 2001 and 2002.
9
Sources: PricewaterhouseCoopers L.L.P. (2002 to 2004), Smith Travel Research (1998 to 2001)
97
98
99
00
01 02E
PricewaterhouseCoopers
Room Starts Declined, But Less Than
Previous Trough
Room Starts
200,000
160,000
120,000
80,000
40,000
0
67
10
71
75
79
83
87
91
95
99
03E
PricewaterhouseCoopers
Sources: PricewaterhouseCoopers L.L.P. (2003 to 2004), PricewaterhouseCoopers L.L.P. based on F.W. Dodge data (1967 to 2002)
2. Why Is This Cycle So
Different?
11
PricewaterhouseCoopers
By Many Measures, The 2001 Recession
Has Been Mild…
Percentage Change
from Peak to Trough
Real GDP
Personal Consumption
Expenditures
Industrial Production
Gross Private
Domestic Investment
Nonfarm Payroll
Employment
Federal Funds Rate
(%) at Trough
12
Source: PricewaterhouseCoopers L.L.P.
1973-1975
1980
1981-1982
1990-1991
2001
-3.4
-0.4
-2.9
-1.5
-0.6
-2.0
-2.4
-0.8
-1.3
0.0
-14.8
-7.0
-10.3
-4.5
-7.1
-29.4
-19.6
-22.2
-15.1
-17.1
-3.0
-1.5
-3.1
-1.6
-1.4
5.54
9.03
9.20
6.12
1.75
PricewaterhouseCoopers
More Robust Economic Growth Ahead
While Inflation Remains Low
Percentage Change from Prior Year
6%
Real GDP
2001
2002
2003
2004
2005
Real GDP
0.3%
2.4%
2.4%
4.0%
3.8%
Inflation
2.8%
1.6%
2.2%
1.2%
1.8%
4%
Inflation
2%
Q4
Q3
Q2
2005 Q1
Q4
Q3
Q2
2004 Q1
Q4
Q3
Q2
2003 Q1
Q4
Q3
Q2
2002 Q1
0%
PricewaterhouseCoopers
13
Source: Macroeconomic Advisers L.L.C.
Capital Costs Will Remain Low,
Re-hiring Will Lag
Percentage Change from Prior Year
Unemployment Rate
6%
10-Year Treasury Yield
Real GDP
4%
Inflation
Fed Funds Rate
2%
Q4
Q3
Q2
2005 Q1
Q4
Q3
Q2
2004 Q1
Q4
Q3
Q2
2003 Q1
Q4
Q3
Q2
2002 Q1
0%
Sources: Macroeconomic Advisers L.L.C.
PricewaterhouseCoopers
14
Source: Macroeconomic Advisers L.L.C.
Daily U.S. Occupancy Performance
Seven-Day Moving Average of Occupancy
Jun. 30 Alert
Oct. 12 Bali Bomb
May 20 Alert
Mar. 17 Alert
Sep. 10 Alert
Oct. 29 Alert
30%
Nov. 14 Alert
May 21 Alert
Feb. 7 Alert
Feb. 12 Alert
Oct. 11 Alert
80
70
Percentage Change From Prior Year
Nov. 12 A/A Crash
20%
60
10%
50
40
0%
30
-10%
Occupancy
Percentage Change
20
-20%
10
15
0
Sep
-30%
Nov
Jan.
2002
Mar
May
Jul
Sep
Sources: PricewaterhouseCoopers L.L.P. based on Smith Travel Research data
Nov
Jan.
2003
Mar
May
Jul
PricewaterhouseCoopers
Factors Promoting Faster Growth
16
•
Stock market recovery
•
Expanding manufacturing and non-manufacturing activity
•
Improving corporate profits
•
Low interest rates, amid higher loan to values are narrowing
financing gaps
•
Strong productivity growth
•
Fiscal stimulus
PricewaterhouseCoopers
3. U.S. Lodging Industry
Forecasts
17
PricewaterhouseCoopers
The Concept of the “Demand and ADR
Gap”
Nominal ADR (Seas. Adj.)
90
Room Nights Sold in Thousands (Seas. Adj.)
A
D
R
G
a
p
85
80
2,800
Demand
70
Actual ADR
Gap
2,600
2,500
Long-Run Demand Trend
65
60
2,400
Actual
2,300
Long-Run ADR Trend
75
2,700
Demand
55
2,200
50
2,100
45
87
2,000
1,900
60
1,800
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
55
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
Nominal RevPAR (Seas. Adj.)
50
Rev
PAR
Gap
Long-Run RevPAR Trend
45
Actual RevPAR
40
35
30
18
87
88
89
90
91
Sources: PricewaterhouseCoopers L.L.P. based on Smith Travel Research data through June 2003
92
93
94
95
96
97
98 99 00 01 02 03
PricewaterhouseCoopers
U.S. Macroeconomic Assumptions
2000
2001
2002
2003
2004
2005
Real GDP Growth
3.8
0.3
2.4
2.4
4.0
3.8
Consumer Price Inflation
3.4
2.8
1.6
2.2
1.2
1.8
19
Source: Macroeconomic Advisers L.L.C. as of August 2003
PricewaterhouseCoopers
Forecast Uncertainties
Geopolitical
• Duration of military action
in Iraq and post military
action resolution
• Personal safety
• Further terrorist actions
against U.S. interests
• Lower expenditures
Macroeconomic
• Sustainability of corporate
profit performance and
investment spending
20
Travel Concerns
• Effect of lack of job
growth on consumer
spending growth
• Inconvenience of travel
• Substitute effect
Others
• Resurge in SARS cases in
the winter season
PricewaterhouseCoopers
U.S. Lodging Industry Forecasts
History
Occupancy Level (%)
Forecast
2000
2001
2002
2003
2004
2005
63.3
59.7
59.1
59.2
60.8
61.6
Percentage Change From Prior Year
Average Daily
Rooms Sold
End-of-Year
Room Supply
3.4
-3.5
0.7
1.5
4.0
2.8
2.6
1.9
1.7
1.3
1.3
1.5
Average Daily Rate
5.5
-1.0
-1.5
0.1
2.2
2.1
Revenue per
Available Room
6.2
-6.6
-2.4
0.2
4.9
3.4
21
Sources: PricewaterhouseCoopers L.L.P. (2003 to 2005), Smith Travel Research (1999 to 2002)
PricewaterhouseCoopers
Emerging Acceleration In Lodging
Demand In Late Summer
Room Nights Sold in Thousands (Seas. Adj.)
FORECAST
2,900
2,800
2,700
2,600
2,500
2,400
2,300
2,200
2,100
1997
1998
1999
2000
2001
2002
2003
22
Sources: PricewaterhouseCoopers L.L.P. (2003 Q3 to 2005 Q4), Smith Travel Research (1997 Q1 to 2003 Q2)
2004
2005
PricewaterhouseCoopers
Historical and Estimated Future Travel
Demand
170
Real US PDI 1987 =100
Lodging Demand 1987=100
Air Travel Demand 1987=100
160
150
140
130
120
Actual Forecast
110
23
Sources: PricewaterhouseCoopers L.L.P. (2003 to 2004), Smith Travel Research (2001 to 2002)
1Q04
1Q03
1Q02
1Q01
1Q00
1Q99
1Q98
1Q97
1Q96
1Q95
1Q94
1Q93
1Q92
1Q91
1Q90
1Q89
1Q88
100
PricewaterhouseCoopers
Little Occupancy Recovery in 2003
Change in Occupancy Points From Prior Year
History
Segment
U.S.
Upper Upscale
Upscale
Midscale with F&B
Midscale without F&B
Economy
Forecast
2000
2001
2002
2003
2004
2005
0.4
0.9
0.6
0.1
-0.2
0.2
-3.6
-6.7
-5.3
-3.8
-2.5
-2.1
-0.6
0.6
-0.3
-1.3
-0.3
-1.7
0.1
0.3
0.4
-0.2
-0.2
-0.7
1.6
2.7
2.2
0.9
1.5
0.8
0.8
1.1
0.8
0.5
0.7
0.7
24
Sources: PricewaterhouseCoopers L.L.P. (2003 to 2005), Smith Travel Research (1999 to 2002)
PricewaterhouseCoopers
Robust Demand Growth For All
Segments In 2004
Change in Demand From Prior Year
History
Segment
U.S.
Upper Upscale
Upscale
Midscale with F&B
Midscale without F&B
Economy
Forecast
1995
2001
2002
2003
2004
2005
3.4
4.3
11.1
-0.7
8.8
3.6
-3.5
-6.1
-0.7
-8.2
3.7
-1.7
0.7
3.7
6.4
-4.2
5.3
-1.9
1.5
2.9
6.5
-2.6
4.4
-2.0
4.0
5.7
7.2
1.5
6.2
2.5
2.8
2.9
5.3
0.4
5.4
2.3
25
Sources: PricewaterhouseCoopers L.L.P. (2003 to 2005), Smith Travel Research (1999 to 2002)
PricewaterhouseCoopers
Rate Growth Will Return in 2004
Percentage Change in Nominal ADR From Prior Year
US
Upper Upscale
Upscale
Midscale w/ F&B
Midscale w/o F&B
Economy
2000
5.5%
6.0%
3.7%
4.3%
4.7%
2.8%
History
2001
-1.0%
-2.7%
-0.2%
0.2%
2.3%
0.1%
2002
-1.5%
-4.2%
-4.2%
-1.5%
-0.2%
-0.2%
26
Sources: PricewaterhouseCoopers L.L.P. (2003 to 2004), Smith Travel Research (2001 to 2002)
2003
0.1%
-1.2%
-1.3%
-0.2%
0.6%
0.0%
Forecast
2004
2.2%
2.3%
2.3%
1.3%
1.6%
0.7%
2005
2.1%
2.2%
2.1%
1.6%
2.2%
1.7%
PricewaterhouseCoopers
RevPAR Will Exceed Inflation For All
Segments By 2004
Percentage Change in Nominal RevPAR From Prior Year
History
Segment
U.S.
Upper Upscale
Upscale
Midscale with F&B
Midscale without F&B
Economy
Forecast
2000
2001
2002
2003
2004
2005
6.2
7.4
4.6
4.6
4.4
3.1
-6.6
-11.8
-7.6
-6.2
-1.6
-3.5
-2.4
-3.3
-4.6
-3.9
-0.7
-3.2
0.2
-0.8
-0.7
-0.6
0.3
-1.3
4.9
6.5
5.8
3.0
4.0
2.2
0.8
3.8
3.4
2.5
3.3
3.0
27
Sources: PricewaterhouseCoopers L.L.P. (2003 to 2005), Smith Travel Research (1999 to 2002)
PricewaterhouseCoopers
Nominal RevPAR Losses For 2001 To 2002 Will
Exceed 2003 And 2004 Increase For Four Segments
Cumulative Percentage Change in RevPAR
12%
Increase between
2003 and 2004
8%
4%
5.7%
5.1%
0%
4.4%
0.8%
-2.3%
-6.6%
-4%
-8%
2.4%
-14.7%
-11.9%
-9.8%
-12%
Decline between
2001 and 2002
-16%
-20%
Upper Upscale
Upscale
Midscale with
F&B
28
Sources: PricewaterhouseCoopers L.L.P. (2003 to 2004), Smith Travel Research (2001 to 2002)
Midscale
without F&B
Economy
PricewaterhouseCoopers
Conclusions
1. Most severe occupancy and rate declines in 75 years
2. Profits exceeded what would have been achieved in any
prior cycle
3. 2004 will be the year of robust demand growth in this cycle
4. Higher than historical supply growth with constrain ADR
and RevPAR growth
5. Not until 2004 Q4 will RevPAR equal 1999 Q4 levels
29
PricewaterhouseCoopers
pwc