Bookings and rates claw back up in June; but summer occupancy and revenues still trailing

 

Along with a year-over-year comparison, the Market Briefing also provides a comparison to the summer of 2019—the last full pre-pandemic summer before the data became dramatically skewed by widespread closures in Summer 2020, followed by dramatic rebounds in 2021 and 2022. 

Booking pace showed some spark

Bookings made in June for arrivals in June through November were up 6.9 percent for the six-month period that compared to last year at this time.  Increased bookings were up in three of those six months with the biggest gains in the short-lead timeframe with June recording a 16.5 percent increase in bookings and July recording an impressive 26.9 percent increase in booking pace. That accelerated pace lifted July occupancy from being down 8.6 percent at the end of May to only being down 3.9 percent as of June 30--a significant recovery. However, August through October were all down.

Boosted by the lively booking pace, actual occupancy during June was only down 0.7 percent compared to last June marking an appreciable improvement from where it was at the end of May. The Average Daily Rate (ADR) recaptured some strength during the month with a 6.9 percent increase over last June, but in a seemingly contrary twist, that 6.9 percent gain is slightly below what it was a month ago—helping to drive the boost in bookings. The higher rates were able to offset the lower occupancy and deliver a 6.2 percent increase in revenues compared to June 2022. In a far more dramatic contrast to 2019, June occupancy was down 6.7 percent, ADR was up 42.5 percent and resulted in a 33 percent increase in revenue compared to June 2019—the last pre-pandemic summer.

Occupancy for the full summer from May through October—both actual and on-the-books-- is down 3.6 percent as of June 30 compared to last summer at this time with declines in all six months. This is an improvement from last month when it was down five percent. Summer ADR is up a slight 1.3 percent with tiny gains in four of  months except July and August. Those fractional gains are unable to offset the lower occupancy and are resulting in a 2.6 decline in aggregated summer revenues compared to one year ago.

Once again, there are striking differences when compared to the Summer of 2019. Summer season occupancy is down 7.8 percent with declines in every month except October. However, daily rates are up a dramatic 41.2 percent to deliver an impressive 30.7 percent increase in revenues—despite the markedly lower occupancy.

“Daily rates are very much the story again this month as year-over-year rates have actually ticked up very slightly since May 31—despite all the inflationary pressure,” emphasized Tom Foley, senior vice president of Business Intelligence for Inntopia. “But those minor increases to historically high rates were not equally distributed across all summer months or all participating regions and properties,” he clarified. 

Foley pointed out that the two summer months—June and July-- that recorded increases in occupancy were also the two months that saw a softening in their daily rates. In contrast, the months/properties experiencing a slower pace were also offering higher year-over-year rates. “Correlation doesn’t necessarily mean causation and there could be other variables in play, especially since the rate increases are fairly modest. However, it is a pattern we have been following for several months and suggests a return to more typical ‘supply and demand’ economics.”

The Dow Jones Industrial Average (DJIA) once again completely reversed direction from the previous month and rose sharply during June—up 1,214 points or 3.7 percent compared to June 2022. The strong rebound was attributed to a resolution of the debt ceiling issue and the better-than-expected reduction in inflation. It also marks the fourth increase in the DJIA during the past six months and places the Index 10.9 percent higher than June 2022.

Further evidence of consumer optimism appeared in both the Consumer Confidence Index (CCI) and the Consumer Sentiment Index (CSI) as both gained sharply in June as consumers appeared to overcome their cautious concern about the economy. The CCI rose 7.2 points or seven percent to reach its highest point since January 2022 and prior to the onset of sustained inflation and the war in Ukraine. The CCI is now 11.5 percent higher than one year ago. Equally upbeat was the Consumer Sentiment Index (CSI) that increased 8.8 percent to reach its highest level since January of this year. Unlike the CCI which saw most of its gains in consumers under age 35, the CSI improved across all demographic groups with consumers citing a positive resolution to the debt ceiling negotiations and easing inflation. Their view of personal finances was unchanged from May—suggesting that persistent inflation is impacting purchasing decisions and priorities.

The national Unemployment Rate dipped slightly in June from 3.7 to 3.6 percent as job creation declined considerably in June with employers adding only 209,000 new jobs—the smallest amount in the past 30 months and may partially be in response to actions taken by the Federal Reserve Bank to cool down inflation and the economy. Wages moved up 0.4 percent compared to June 2022 and edged slightly ahead of the national inflation rate. The Leisure & Hospitality sector had another tepid showing for the third consecutive month with only 21,000 new jobs added to payrolls while Retail and Trade actually dropped 11,000 positions.

The national Inflation Rate exceeded expectations and declined sharply—from four percent in May to three percent in June and marks the 12th consecutive decline in inflation to reach its lowest level since March 2021. However, prices did increase during the month with the Consumer Price Index up 0.2 percent. Some travel inflation was down during the month including airfares down 8.1 percent from May 2023 and gas prices down 26 percent from one year ago—good news for both air and drive travelers.

“Although this is generally good news, additional interest rate hikes are expected this year which will make spending on credit more expensive,” noted Foley. And the reality is, although things are moving in the right direction, inflation is a long-term issue and while it is only three percent for this year, for the past two years it is at 12.3 percent and a challenging 18.4 percent over three years.”

*Daily rates: year-over-year ADR among participating properties reversed a three-month trend of softening rates and inched up 0.4 percent during June for the full summer. However, despite the slight uptick, summer ADR has declined considerably in the past four months in response to increasingly price sensitive consumers.

*Length of Stay: arrivals in June eked out a slight improvement from one month ago, moving from being down 0.1 nights per booking to being down .07 nights. However, the length of stay on-the-books shortened for the remainder of the summer season with October showing the largest decrease in length of stay.

*Price sensitivity: although price sensitivity appears to have eased somewhat in the past month, it remains a major consideration for overnight visitors and it is unknown if the June uptick is an outlier after five consecutive months of softening rates or if this indicates wider acceptance of current rates.

“While price sensitivity is the single most important data point for the fifth consecutive month, we have seen a small uptick in consumers’ tolerance for the ongoing record-high room rates,” observed Foley. “But, when we dive into the details, our analysis showed that higher rates in some months are leading to softer demand and vice-versa—lower rates are driving higher demand. But results for one month are not considered a trend or pattern and another month or two of data will give us a much better perspective about which way rates are headed,” he concluded.