PKF: Drastically reduced air capacity will hit hotels hard

Hotels in the U.S. could face a decline in lodging demand greater than that experienced following the 9/11 terrorist attacks, according to analytical data from PKF Hospitality Research. 

According to a PKF econometric analysis, a 1% decline in the number of airline seats flown within the U.S. results in a 0.39% decline in demand at the nation's hotels. If airline capacity falls 10% (an expected drop after the busy summer travel season), then lodging demand would fall 3.9%, said PKF.

"To put this in perspective, the decline in lodging demand experienced in 2001 was just 3.3%," said Mark Woodworth, PKF's president.

A 3.9% reduction in lodging demand for the year would translate into approximately 40 million fewer room nights occupied, or $4.3 billion in revenue, on an annual basis. 

"With losses like this, hotel operators would be forced to make drastic cutbacks in staffing and other operating costs," Woodworth said.

PKF said an analysis has found that Miami, Orlando, Phoenix and Denver have historically shown the strongest correlation between airline seats and lodging demand, indicating that these cities are the most sensitive to changes in airline service. 

"What these markets have in common is that they are either major leisure destinations or geographically situated in an isolated location away from other major metropolitan areas," said Jack Corgel, the Robert C. Baker professor of real estate at the Cornell University School of Hotel Administration and senior advisor to PKF. "Conversely, cities that are very economically diverse, or those that are easily accessible from other metro areas via automobile or train, are best positioned to withstand cutbacks in airline capacity. Most of the major cities along the two coasts fall into these categories."

In general, properties in the highest and lowest chain scales are least susceptible to movements in airline capacity, said Corgel, while those in the middle stand to lose the most. 

"Historically, the performance of luxury hotels and budget-oriented motels is largely insensitive to changes in airline capacity," Corgel said. "Conversely, lodging establishments in the upscale and midscale-without-food-and-beverage categories have exhibited the greatest historical vulnerability to changes in the airline industry.  These two lodging segments are popular with mid-level business and leisure consumers that don't have quite the economic insulation of executive luxury travelers or the bare-bones budget of construction crews and thrifty trekkers."

 

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