Seeking Alpha
Profile| Send Message|
( followers)  

The operating environment in the hotels industry deteriorated in the last several quarters owing to the slowdown in the global economy, contracting credit markets and reduced consumer spends. However, with some early signs of economic recovery, the hotel industry is experiencing an increase in demand.

The operating metrics are looking up and year-over-year comparisons are becoming easier as the operating environment for the hotel industry was significantly stressed in the prior year.

Though corporate houses are still controlling their expenses, the recovery in the economy has seen the return of business travelers, with leisure demand increasing as well.

Improvement in hotel occupancy levels, average daily room rates and RevPAR (revenue per available room) are important indicators of a turnaround in hotels industry.

Marriott International Inc. (MAR), a leading worldwide hospitality company in the hotel industry, saw a rise in room rates at its North American hotels for the first time in two years during the month of May, indicating that the lodging industry is showing improvement.

Las Vegas Sands Corp. (LVS), the casino company, also announced recently that its Las Vegas business is picking up especially during weekends as the economy gains lost ground.

The demand for hotels is greater in the international market than in the U.S., where the pace of economic recovery is particularly fast. Thus, companies such as Starwood Hotels and Resorts Worldwide Inc. (HOT) and Marriott are increasing their pipeline particularly in the Asia-Pacific region. Countries in the region that are of specific interest include China and India.

We believe that the recovery of the hotel industry has begun. The trend of positive demand growth is expected to continue in 2010 and beyond driven by economic recovery. According to the data from Smith Travel Research, the leading information and data provider for the lodging industry, the U.S. hotel industry reported mostly positive results in all three key performance measurements – occupancy level, ADR and RevPAR – during the week starting May 23, 2010.

Comparing the operating metrics with the prior-year period, it was found that the hotel industry’s occupancy increased 19.1% to 61.3%. Average daily rate was up 4.3% to $97.21. As a result, RevPAR rose 24.2% to $59.56. Moreover, supply is expected to grow 2.0% during 2010 and demand is projected to increase 5.7%.

The operating environment in the international market is however better, which in turn is driving hoteliers to increase their share of the pie. Hotels in the Asia/Pacific region experienced increases in all three key performance metrics for April 2010, according to data from Smith Travel Research. The Asia-Pacific region’s occupancy rose 11.7% to 65.3%, ADR increased 13.1% to $130.06 and RevPAR jumped 26.4% to $84.96.

Currently, there are a number of stocks in the hotel industry universe with a Zacks Rank #2 (“Buy”). These include Marriott, Starwood, Home Inns & Hotels Management Inc. (HMIN), Intercontinental Hotels Group plc (IHG) and Wyndham Worldwide Corp. (WYN).

We believe companies such as Marriott and Starwood are better positioned to benefit given their global pipeline.

Source: Hotel Industry Showing Improvement