• Hospitality Industry Recovery

    History Shows It Can Take a While for Rates to Rebound

    A broad cross-section of hotel owners and operators have recently cautioned investors to disregard earlier corporate projections for revenue and profits, given the uncertainty over the loss of business they might endure as travelers and business groups cancel plans in the face of a global coronavirus outbreak.

    History shows such sudden drops in travel can quickly affect the average daily rates hotels charge and the revenue-per-available room they might reap. Two big past disruptions offer hints about how long it might take to recover. The short answer: Not quickly.


    Looking at aftermath of the September 11 terrorists attacks and the period following the 2008 financial collapse show that it can be easy to drop rates but far more difficult to raise them back up. It took 36 months to recover post 9/11, and nearly six years after 2008.

    To understand this exercise, let's explain the math.

    We are holding the month of each disruption's starting point (September 2001 and September 2008) constant and computing a percentage change for each month, based on the 12-month moving average for ADR, until the percentage turns positive again. As we have noted, dropping ADR is easy, while gaining ADR is difficult.

    Post-9/11 room rates declined swiftly for 12 months, but it took double that time to return back to where they were in September 2001.

    The same impact was visible after the collapse of the investment bank Lehman Brothers in 2008 as room rates declined 19 months and took 37 months to recover.

    Those smooth lines hide much more pronounced ADR declines during some months, which reached close to 20% in 2008/2009.

    It is important to note the differences for the two events:

    • 9/11 caused an immediate and sharp decline as well as subsequent “less negative” monthly results
    • 2008 started a more gradual ADR decline with a more severe outcome

    Of course, ADR is only part of the equation. The demand shock led to occupancy decreases and severe revenue-per-available room declines as can be shown in our indexed data. But some hotels fared better than others. Luxury hotels tended to see business return faster as guests, especially those seeking short-term stays, raced to take advantage of favorable rates. It also has been common to see group rates snap back momentarily as organizations begin holding meetings again and pay based on prices they had locked months in advance. Then – to the surprise of exactly no one - this happens: Because revenue managers offer lower rates to the public, meeting attendees, who had booked the convention / group rate see the day before they start their trip the same room in the same hotel for a lower rate on an online channel and then likely rebook. It is possible that this then inflated demand for short stays at the expense of group demand.

    The 9/11 and 2008 recession may not be the only comparisons, depending on how extensive the outbreak is here in the U.S. The 2003 Severe Acute Respiratory Syndrome epidemic and the N1H1 swine flu outbreak also hit demand much harder near their origins outside the U.S. than they affected operations of hotels inside the country. In the cases of those two outbreaks, demand started to rebound six and nine months after World Health Organization warnings.

    • March 12, 2020