Under a worst-case scenario, a 1 percent decline in the number of seats flown within the U.S. will result in a 0.39 percent decline in the demand at the nation’s hotels. These findings come from an in-depth econometric analysis performed by lodging experts PKF Hospitality Research.
“Many industry participants have been speculating about the spillover effect a deteriorating airline industry will have on hotels,” said Mark Woodworth, (top right photo) president of PKF Hospitality Research. “Our research measured the historical relationship between these two components of the travel industry. This allowed us to project just how much business hotels stand to lose given the cutbacks in capacity announced by the major airlines.”
Using historical data from Smith Travel Research, Moody’s Economy.com, and the Department of Transportation, and controlling for the effects of changes in income and employment, PKF-HR found what many intuitively believe: a highly significant relationship exists between available seats and hotel room night demand.
“Based on our findings that a 1 percent decline in available airline seats results in a 0.39 percent decrease in hotel demand, if airline capacity is reduced by 10 percent as some have suggested, then lodging demand would fall off 3.9 percent. To put this in perspective, the decline in lodging demand experienced in 2001 was just 3.3 percent,” Woodworth noted.
Several factors, however, suggest that the decline might not be quite so bad. “As one would expect, the airlines are eliminating those flights that are in least demand and lowest in fuel efficiency. Some portion of the demand that would have booked a flight that is no longer available will simply adjust the timing of their travel plans. Trips will still be made,” Woodworth noted.
Location and Rate Matter
“Just as we have observed during the ebbs and flows of the normal lodging cycle, the reaction of U.S. hotels to a major economic shift will differ based on a variety of factors,” he added.
Statistically speaking, the PKF-HR regression analysis found that Miami, Orlando, Phoenix, and Denver have historically shown the most significant relationships between airline seats and lodging demand.
(Atlanta's Jackson International Airport at left)
Pricing levels also dictate the vulnerability of hotels to changes in the airline industry. In general, properties in the highest and lowest rated chain-scales are least susceptible to movements in airline capacity, while those in the middle stand to lose the most.
“Given what is happening in today’s economy, there are many moving parts influencing the performance of hotels.
To purchase a second quarter 2008 Hotel HorizonsSM forecast report for the United States, or one of 50 individual markets, please visit the firm’s online store at www.pkfc.com/hotelhorizons, or call (866) 842-8754. (Chicago's O'Hare International Airport at right)
PKF Hospitality Research (PKF-HR), headquartered in Atlanta, is the research affiliate of PKF Consulting, a consulting and real estate firm specializing in the hospitality industry. PKF Consulting has offices in Boston, New York, Philadelphia, Washington DC, Atlanta, Indianapolis, Houston, Dallas, Bozeman, Sacramento, Seattle, Los Angeles, and San Francisco.
Chris Daly or Jerry Daly (media)
Daly Gray Public Relations
Atlanta, GA 30326
(404) 842-1150, ext 222