At the recent Virtuoso Travel Mart in Las Vegas, Jan Freitag, vice president of Smith Travel Research, offered a bird’s-eye view of the luxury hotel market. “The data is looking up,” he told a room full of hoteliers. “Demand is back.” Yet, rates this year are flat when compared to last year and severely off from 2008’s highs.
There is a silver lining though.
Travel Market Report found that travel agents aren’t necessarily upset by the low rates. In fact, travel sellers pointed out that this offers a tremendous opportunity to up-sell clients who normally wouldn't book luxury hotels.
Occupancy on the Rise
Across the geographic board, demand for luxury hotels (both chain and independent) is strong and occupancies have risen over 2009. For instance, in the Americas 57.6% of luxury properties achieved at least 60% occupancy every night in 2009. So far this year that percentage has risen to 62.5%.
Similarly, in the Caribbean 60% occupancy went from 58.6% in 2009 to 63.5% in 2010.
The most dramatic increases have been in Europe, where 60% occupancy grew from 52.6% in 2009 to 61.9% this year, and in the AsiaPac region – 52.6% in 2009 vs. 61.9% this year.
Europe in High Demand
John Schmitt, Jr. CTC, vice president and director of sales and marketing for Superior & Frankenmuth Travel Service told Travel Market Report he is seeing the largest growth in demand for luxury hotels in Europe this year, when compared to last year.
“I would suggest that the U.S. dollar is stronger, therefore demand is higher,” he said. “Also, if the luxury properties have provided better valued contracts to wholesalers, the packages are better priced.”
Donna Johnson, president of Red Bird Travel Plus, also told TMR she is seeing increased bookings for international luxury hotels – especially in Italy, she added.
Zooming in for a closer look at demand in key cities in these regions, demand is up 4.4% in London, 15.2% in Berlin, and 20.6% in Tokyo.
Ken Schwinn of Schwinn Tours & Travel also told TMR he is noticing more demand for luxury hotels – “both abroad and in the States.”
But Freitag cautioned against celebrating. “While demand is coming back, it has not recovered to 2008 levels,” he said.
In fact, all percentages are down when compared to 2008 when the Americas saw a 60% or higher level of occupancy in 67.6% of luxury hotels.
But Europe isn’t too far off the 2008 mark of 64.1%. Nor is AsiaPac far off 2008’s 64.1%. On the other hand, the Middle East is way off 2008’s high of 70.8%, with a 60% occupancy rate of just 60.9% this year – up just slightly from 59.7% in 2009.
Supply Slowly Growing
In at least one geographic region, part of what may be keeping occupancies from returning to 2008’s levels could be the increase in room supply. In the Middle East where occupancy levels are the most off, supply has increased 14% since 2008. The discrepancy in the Middle East is being driven by the off the charts increase in supply in Dubai. In 2009 supply grew by 25%, and has grown another 8.9% this year, while demand is up 11.5% this year after being down last year.
Supply also increased in the Americas (+8%), Europe (+4%) and Asia Pac (+10%).
Taking a closer look at cities in the Americas and Europe, Freitag said the supply in London and New York had a fall off for awhile, but is slowly coming back. In London room supply is up 1.3% this year and in New York its up 2.7%.
ADR Still a Dark Cloud
With the ADR (average daily rate) of luxury hotels remaining relatively flat, the deep discounting of hotel room rates is still evident.
In the Americas, where the ADR in 2008 was $287, this year consumers are paying on average $242. This represents a 16% discount over 2008’s high rates, though flat when compared to 2009’s ADR of $245.
Discounts are slightly smaller in other areas. For instance, in the Caribbean, Europe and AsiaPac prices are 12% below 2008’s. In the Caribbean, the ADR is $337 this year vs. $380 in 2008. In Europe, the ADR is €240 this year vs. €271 in 2008. And, in the Asia-Pacific region, the ADR is $204 this year vs. $233.
And despite the large discrepancy between supply and demand in the Middle East, overall ADR has only dropped 6% since 2008 – $272 this year vs. $290 in 2008.
Of all the geographic regions only AsiaPac saw measurable growth this year over last, where this year’s ADR of $204 is slightly above 2009’s ADR of $195.
Silver Lining for Travel Sellers
But while lower ADR means smaller commissions for travel agents, both Schwinn, Johnson and Schmitt told Travel Market Report there is a positive side to the lower prices--the chance to up-sell.
“It’s possible that the recent economic problems, although cutting into discretionary spending, have also brought luxury hotel rates down to a level that people who wouldn’t normally even try have found their chance to upgrade,” Schwinn said, adding “People who traditionally only travel in style are still booking upscale properties. It’s like flying first class, you never want to go back to coach.”
“I have found a huge opportunity to up-sell three-star clients to four and five-star properties for slightly more than three-star prices,” Johnson said. Where Schwinn compared it to flying first class, Johnson compared the upsell to upgrading a cruise client to a balcony stateroom.
“Clients never want anything less,” afterwards.
Similarly, Schmitt’s clients, he said, are seeking higher value European vacations this year, rather than budget options.
“With the increased demand, we are earning additional clients, which in the long run, grows our client list.”