Hotels: Worst Week Yet

Highlights include Marriott International, Inc. (MAR - Analyst Report), Starwood Hotels & Resorts Worldwide, Inc. (HOT - Analyst Report) and Intercontinental Hotels Group (IHG - Snapshot Report).

The hotel industry posted its work week of 2009 last week, as the recession continues to take its toll.

According to data from Smith Travel Research, Inc., the week ended April 11 was the worst of the year to date, with each primary operating metric posting its largest decline thus far.

Occupancy fell 17.9% year-over-year, while average daily room rate, or ADR, fell 12.5% versus the year-ago period. Together, this resulting in revenue per available room, or RevPAR, falling 28.1% compared to the prior-year period.

These weekly declines substantially exceed the previous 2009 weekly average declines of 12.3% in occupancy, 7.5% in ADR, and 18.9% in RevPAR.

The fact that both occupancy and ADR posted their worst declines of the year last week is a troubling sign, in our opinion. We believe that it is generally a mistake for hotel operators to cut room rates in an attempt to drive occupancy higher. When those reductions in room rate fail to stem falling occupancy, however, the negative impact on the bottom line is amplified even further.

Higher-end hotels fared worst last week, with occupancy at upscale chains down 22.0%. At upper-upscale chains, ADR was down 18.0% and RevPAR was down 35.9%, representing the largest declines in each metric.

The road ahead clearly remains extremely challenging for the large hotel companies, including Marriott (MAR - Analyst Report), Starwood (HOT - Analyst Report), and Intercontinental Hotels Group (IHG - Snapshot Report).

Some macroeconomic signs have pointed towards a potential stabilization of the economy. However, we see no clear sign on the horizon that operating fundamentals in the hotel industry will improve in the near future.

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