Cheaper Airfares and Strong Labor Market: Boosting Hotel Occupancy Rates

Impact of Cheaper Airfares on Travel Demand

Cheaper airfares have significantly boosted travel demand, as evidenced by higher ticket sales and increased air traffic liabilities at Southwest Airlines. Delta Air Lines also reported strong international travel demand and higher load factors. However, United Airlines noted that air travel demand is inelastic, suggesting limited impact from fare changes.

"The operating cash flows for the six months ended June 30, 2023, were largely impacted by the Company's net income (as adjusted for noncash items), an $809 million increase in Air traffic liability driven by higher ticket sales related to an increase in travel demand, and an increase of $140 million in excise tax liabilities due to an increase in sales related to an increase in travel demand. These increases were partially offset by a $243 million" --- (LUV, sec filing, 2024/Q2)

"Strong demand for international travel, particularly to leisure destinations, enabled a one point increase in load factor on a 16% increase in capacity compared to the March 2023 quarter." --- (DAL, sec filing, 2024/Q1)

"The reason that happens is because demand for air travel is inelastic. Like the very first project I worked on when I was an analyst at American Airlines was estimating demand elasticity, it is inelastic, every bit of analysis you look at says that demand is inelastic." --- (UAL, earning call, 2024/Q2)

"We see demand coming back. It's strong again this year, and that's favorable for American Airlines because that demand is also coming in the places that we are strong." --- (AAL, earning call, 2024/Q1)

"travel demand, and an increase of $140 million in excise tax liabilities due to an increase in sales related to an increase in travel demand." --- (LUV, sec filing, 2024/Q2)

Influence of Strong Labor Market on Travel Spending

A strong labor market has bolstered travel spending, with increased business travel and resilient demand across customer segments. Companies like Marriott and Hilton report steady growth and positive customer sentiment, attributing this to robust employment and economic resilience.

"But then also as you know, Stephen, kind of moving down into the mid scale tier of lodging, which for us over the past 18 months has been a new market entry point for us, one that really arose as a result of combination of conversations both with our customers, kind of first level bonvoy members, if you will, traveling salespeople who say it's great that I can find a Fairfield, but I really would like to be able to find in a tertiary market something that I still can stay within the Bonvoy system." --- (MAR, conference, 2024/06/04)

"The demand is great. Every month that goes by, it’s very strong. While the first quarter was certainly choppy because of the movement of the holiday and all that, when you talk to customers, which we do all the time and I do, I think you get a very positive view about their people traveling more for business transient." --- (HLT, earning call, 2024/Q1)

"As Leeny will now discuss further as part of her financial review, we are raising our full year 2024 earnings and capital returns guidance on the back of the strength of our diverse global portfolio, the continued resilient and steady demand for travel, our strong international performance, and our continued rooms growth. Leeny?" --- (MAR, earning call, 2024/Q1)

"And because the economy has been resilient and employment has been strong, I think it helps with the underpinning, while leisure certainly is normalizing from super high levels." --- (HLT, earning call, 2024/Q1)

"In EMEA, RevPAR growth of 10.1 percent in the 2024 first quarter was driven by strong demand in most countries across the region, reflecting strength across most customer segments." --- (MAR, sec filing, 2024/Q1)

Key Metrics on Hotel Occupancy Rates

Marriott's international properties saw a 1.2 percentage point increase in occupancy, while their US & Canada properties experienced a slight 0.6 percentage point rise. Conversely, Hilton's franchised hotels reported a 0.7 percentage point decline in occupancy. RevPAR remains a crucial performance metric, reflecting these occupancy trends.

"MARRIOTT INTERNATIONAL, INC. KEY LODGING STATISTICS In Constant $ Comparable Company-Operated International Properties Three Months Ended March 31, 2024 and March 31, 2023 REVPAR Occupancy Average Daily Rate Region 2024 vs. 2023 2024 vs. 2023 2024 vs. 2023 Europe 147.12 5.5 % 61.6 % 1.2 % pts." --- (MAR, press release, 2024/05/01)

"During the three months ended March 31, 2024, RevPAR at our comparable franchised hotels decreased 0.2 percent due to a decrease in occupancy of 0.7 percentage points, which was partially offset by an increase in ADR of 0.8 percent." --- (HLT, sec filing, 2024/Q1)

"MARRIOTT INTERNATIONAL, INC. KEY LODGING STATISTICS In Constant $ Comparable Company-Operated US & Canada Properties Three Months Ended March 31, 2024 and March 31, 2023 REVPAR Occupancy Average Daily Rate Brand 2024 vs. 2023 2024 vs. 2023 2024 vs. 2023 JW Marriott 261.98 3.3 % 71.2 % 0.6 % pts." --- (MAR, press release, 2024/05/01)

"We consider RevPAR to be a meaningful indicator of our performance as it provides a metric correlated to two primary and key drivers of operations at a hotel or group of hotels, as previously described: occupancy and ADR." --- (HLT, sec filing, 2024/Q1)

"$ 258.76 2.1 % Comparable Systemwide US & Canada Properties Three Months Ended March 31, 2024 and March 31, 2023 REVPAR Occupancy Average Daily Rate Brand 2024 vs. 2023 2024 vs. 2023 2024 vs. 2023 JW Marriott 248.38 2.7 % 71.2 % -0.1 % pts." --- (MAR, press release, 2024/05/01)

Regional Trends in Hotel Occupancy Rates

Hotel occupancy rates in the U.S. and Canada saw a slight increase, with RevPAR up 2.6% and occupancy up 0.3%. In India, Marriott's strong market position has driven excellent performance. Additionally, the growing demand for midscale hotels presents significant opportunities for occupancy growth.

"Three Months Ended March 31, 2024 and Change vs. Three Months Ended March 31, 2023 RevPAR Occupancy Average Daily Rate 2024 vs. 2023 2024 vs. 2023 2024 vs. 2023 Comparable Company-Operated Properties U.S. & Canada $ 170.75 2.6 % 66.0 % 0.3 % pts." --- (MAR, sec filing, 2024/Q1)

"Sure. So we'll start in the U. S. As I'm sure many of you know, the way new hotel supply works is very much tied to the macroeconomic you're looking at some of the lowest supply growth that we've seen in a long time, probably about half of what it was pre COVID." --- (MAR, conference, 2024/06/04)

"We also believe occupancy and average daily rate ("ADR"), which are components of calculating RevPAR, are meaningful indicators of our performance." --- (MAR, sec filing, 2024/Q1)

"quite rapidly, and with a growing middle class. And I'd say Marriott has a really spectacular leadership position in terms of growing our brands in India and the hotel has been performing very well." --- (MAR, conference, 2024/06/04)

"As demand for midscale hotels grows rapidly, we see a tremendous opportunity to offer high-quality and comfortable accommodation at great value." --- (MAR, press release, 2024/05/07)

Business vs. Leisure Travel Impact on Occupancy

Leisure travel is significantly boosting hotel occupancy, with many planning multiple trips. However, business travel still dominates, comprising 70-75% of bookings. Regional trends show strong international leisure travel, while US expectations are slightly down due to more Americans traveling abroad. Hilton's luxury expansion also caters to the growing leisure segment.

"An average of six leisure trips is planned within the next 12 months while 33% of respondents are planning at least seven holidays this year." --- (MAR, press release, 2024/07/01)

"And the calendar shift because remember, leisure is sort of 25% or 30% of our business and because of the calendar – because of the holiday shift, it ended up being a big leisure quarter, which meant leisure was good, but the reality is then 70%, 75% of the business was not." --- (HLT, earning call, 2024/Q1)

"We're seeing a little more normalization in the US and Canada, but continued increases in strength in the international markets, and I think that applies specifically to your question on the leisure." --- (MAR, earning call, 2024/Q1)

"Guests can enjoy new ways to stay in a collection of unique, independently minded city, beach and resort hotels in sought-after destinations around the world Hilton is dramatically expanding its portfolio of luxury hotel experiences with the addition of nearly 400 boutique properties from the exquisite Small Luxury Hotels of the World (SLH) collection." --- (HLT, press release, 2024/07/09)

"It sounds like you're -- you revised your US expectations down a little bit and it sounds like that's primarily due to the leisure component, maybe more people going abroad, staying with your hotels there, and I get that your worldwide RevPAR outlook hasn't changed, but is there anything else you're seeing in the US that you can share that maybe led you to expect a little bit lower coming out here nationwide for the year, or is it all just because of what you're seeing on the leisure side?" --- (MAR, earning call, 2024/Q1)

Competitive Landscape in the Hotel Industry

Hilton and Marriott dominate the competitive landscape with extensive development experience, strategic partnerships, and unique brand portfolios. Hilton leverages its Curio Collection and loyalty program, while Marriott focuses on luxury brands and strategic financial management through partnerships. Both companies emphasize long-term market positioning and strong demand fundamentals.

"Over the past 40 years, the company has also been engaged in new development and redevelopment of more than 80 hotel projects with leading brand affiliations such as Marriott International, InterContinental Hotels, Choice Hotels, and Hilton." --- (HLT, press release, 2024/07/29)

"Luxury Brands & Global Mixed-Use. "We look forward to working closely with our owners and franchisees to provide best-in-class service and experiences to guests from around the world seeking out these incredible destinations." With an unrivaled portfolio of seven dynamic luxury brands — The Ritz-Carlton, including Ritz-Carlton Reserve and The Ritz-Carlton Yacht Collection, Bvlgari Hotels & Resorts, St. Regis Hotels & Resorts, EDITION, The Luxury Collection, JW Marriott, and W Hotels, Marriott currently has over 510 open luxury hotels and resorts in 70 countries and territories." --- (MAR, press release, 2024/06/03)

"Each hotel in the Curio Collection evokes a bespoke story through distinctive architecture and design, world-class food & beverage and curated experiences, while providing the benefits of Hilton and its award-winning guest loyalty program Hilton Honors—Experience Curio Collection by Hilton by booking at curiocollection.com or through the industry-leading Hilton Honors app." --- (HLT, press release, 2024/06/04)

"We will be working on a comprehensive view of that hotel for public space, for F&B, for the rooms, et cetera, and ideally, would be working with a partner so that you can really, in essence, do it together so that it wouldn't be on Marriott's balance sheet, but that we would sell the hotel and then work towards what the hotel should look like with a partner." --- (MAR, earning call, 2024/Q1)

"And again, as Tony is always quick to remind everyone, this is a long-term business where folks are used to weathering the economic cycles and recognize that if there's a great place to put a hotel with strong demand of fundamentals, it's good to get it going, especially with a beautiful new product." --- (MAR, earning call, 2024/Q1)