Leading Meeting Professionals

Professional Convention Management Association

May 23 2016

The Hotel Industry’s Party May Be Over

Mary Reynolds Kane

Members of the hotel industry have had plenty of reasons to smile over the past few years. With record-breaking occupancy rates, surging room rates and rising group demand, it’s been a profit party. However, it looks like the lights may be dimming on that party according to a pretty important opinion: Wall Street. Last week, an article in Bloomberg highlighted that analysts at Bank of America believe hotel stocks are poised for trouble.

“We have been noting for some time that all demand indicators are at peak while hotel supply is rising, internet pricing is dragging on rates, and alternative accommodations — including Airbnb — are a threat,” the letter stated. “Given this backdrop, it’s increasingly clear that the lodging cycle that began in March 2009 is over.”

BofA downgraded shares of Hilton, Hyatt and Hersha Hospitality Trust from “buy” to “neutral.” While the stocks didn’t suffer a large impact from Wall Street’s worries, plenty of hotels have seen their value drop in the past year. For example, in May 2015, Hilton’s shares were trading near $30; one year later, those shares are hovering around the $22 mark. Hyatt has been on a similar year-over-year trajectory, moving from near $60 per share to below $50.

SEE ALSO: 6 Things To Know About The Hotel Industry Now

Airbnb Vs. Everyone

Many in the hotel industry may disagree with BofA’s comments, particularly the financial giant’s worries that Airbnb will eat into the profits of traditional properties. As the popularity of peer-to-peer rentals has increased, there are industry veterans who see Airbnb’s appeal resonating with a different audience from typical hotel guests. In a 2014 Fast Company article, Christopher Norton, EVP of global product and operations at the Four Seasons, highlighted why his company isn’t worried about Airbnb eating into their earnings. “Our guests don’t want the Airbnb feel and scent,” Norton said.

While Four Seasons guests may not be comparing options on Airbnb, it’s becoming clear that many other guests are exploring the Airbnb landscape. A recent study from CBRE Hotels’ Americas Research shows that travelers spent $2.4 billion on Airbnb properties between October 2014 and September 2015. While that’s only 1.7 percent of the revenue generated by hotels in the same timeframe, it seems likely that the number will increase as more travelers become aware of Airbnb. And they’re already starting to recognize the name; the company is investing in its biggest advertising campaign yet.

New competition and an increase in supply may create some challenges for hotels, but in the short-term, it will still be a seller’s market. Check out “A Win-Win Strategy For Your Hotel Room Block Negotiations” for help navigating the current landscape.

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