Correlation between hotel demand and ADR

The latest from Hotel News Now research shows little correlation between hotel room night demand and ADR.

Published by: M. Brian Riley/Hotel News Now

Published date: March 2018

With a lens focused on identifying seasonal patterns in the key performance indicators, STR reviewed three years—2015 to 2017—of U.S. performance data.

We found that on a national basis, U.S. room demand—along with its related occupancy indicator—follows a distinct seasonal pattern with clear high and low months. Average daily rate, on the other hand, showed remarkably little movement across months.

In an industry that thrives on understanding and anticipating long-term trends, seasonality is an often-neglected factor that has major implications within the hotel sector. In particular, local players, who are tasked with making marketing decisions along with planning appropriate pricing and room availability, can benefit from a deeper understanding of seasonal performance trends.

Room demand
Room demand is highly seasonal. The chart below demonstrates monthly changes in U.S. demand, compared to the three-year average. July clearly tops all other months (+16% above the yearly average). June and August also coincide with a “high season,” with both months drawing 10% more demand than the monthly average. The July peak averaged over 35 million more rooms than the slowest months of December and January. January just trails December for the lowest total room demand (-17% below yearly average). February also shows a decline of 14% from average yearly demand.

The “heat bar” at the bottom of chart provides a quick visual cue to the strength of seasonal differences. Red indicates “hot” or high seasons with larger demand when compared to the annual average while blue indicates “cold” or lower indexed performance periods with lower demand than the annual average.

ADR seasonality
The key takeaway from U.S. hotels’ monthly changes in ADR is simple: monthly ADR changes are essentially nonexistent across the year. With U.S. ADR averaging $125 over three years (inflation adjusted to EOY 2017), only January demonstrates a notable—though still very modest—discount ($119, 5% below indexed) from other months. On aggregate, ADR does not show any major month-to-month or seasonal shifts.

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