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Credit Card Delinquency Impacts U.S. Economy Hotels as Luxury Demand Rises – Image Credit Unsplash
The widening gap between luxury and economy hotels in the U.S. is influenced by delinquent credit card rates rather than GDP for economy hotels.
Luxury vs. Economy Hotel Demand
The U.S. hotel industry is experiencing a divergence in demand between luxury and economy hotels. While luxury hotel demand is on the rise, the economy segment continues to face declining demand. This trend was highlighted during a session at the Hotel Data Conference, where it was noted that all hotel classes, except for upper upscale and luxury, are experiencing negative occupancy rates.
Influence of Economic Indicators
For economy hotels, delinquent credit card rates are more indicative of RevPAR trends than gross domestic product (GDP). Despite GDP growth, consumers staying in economy hotels are increasingly relying on credit to fund their travel, impacting the sector’s performance. Additionally, the economy hotel segment has experienced consistent supply growth since 2016, except in 2020, which has contributed to performance challenges.
Occupancy and Revenue Trends
Economy hotels are operating below 55% occupancy and have faced 18 consecutive months of decline in revenue per available room (RevPAR). Although there is a flattening of this decline, a significant portion of the U.S. hotel industry is not experiencing growth in occupancy, average daily rate (ADR), or RevPAR. The current performance patterns are reminiscent of previous recessionary periods, with a notable bifurcation between the luxury and economy segments.
Luxury Segment Dynamics
The luxury hotel segment shows alignment with GDP trends, although stock market improvements do not directly correlate with increased demand. Luxury hotels are experiencing a supply boost, particularly in cities like Miami, Detroit, and Los Angeles. Independent hotels are leading this growth, requiring higher staff-to-guest ratios, which presents challenges in the current economic environment.
Future Outlook
The bifurcation trend is expected to persist, with luxury hotels continuing to outpace other segments. This trend is evident even in segments previously resistant to such patterns, such as extended stay. The hospitality industry anticipates ongoing discussions about these trends, with an economic recovery not expected until the end of 2027.
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