Hotels & Lodging Stock Outlook - April 2014 - Industry Outlook - Choice Hotels Intl (NYSE:CHH), Hyatt Hotels (NYSE:H)

The U.S. hotel & lodging industry wrapped up the year 2013 on a mixed note as the economy struggled to gradually get back to health. The year was led by strong demand from business as well as leisure travelers which, along with limited supply, gave hoteliers strong pricing power throughout the year.

In fact, important factors like higher barriers to entry and lower reliance on third-party wholesalers have positioned the hoteliers to attain peak levels not seen since the onset of the global economic crisis in 2007. The hoteliers are making every effort to improve their primary performance metrics like occupancy and revenue per available room (RevPAR).

However, higher cost and expenses incurred for continued renovation and other initiatives taken by leading hoteliers to improve traffic have dampened the bottom line. Moreover, economic and political uncertainty in most parts of the world remained as challenges.

In spite of these headwinds, the lodging performance indicators showed year-over-year improvements. According to Smith Travel Research (“STR”), the leading information and data provider for the lodging industry, the average daily rate (“ADR”) at U.S. hotels in 2013 was up 3.9% year over year. Overall occupancy was up 1.5% year over year.

Notwithstanding the common macroeconomic hurdles, the lodging sector is expected to continue to recover this year, thanks to an improving U.S. business as well as strong international travel and tourism volumes. In fact, the uptrend visible in occupancy rate, average daily rate as well as RevPar for the first and second weeks of March, if it is any clue, speaks well for 2014 on the whole.

Statistics bear out this relatively favorable environment. A recent report by Price Waterhouse Coopers shows that the lodging sector will continue to outperform in 2014 and 2015 on the back of robust booking trend and a solid travel and tourism market. The market researcher expects RevPAR growth of 6.0% in 2014, driven by increased ADR of 4.5% which is better than 3.9% in 2013.

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