US ECONOMY AND HOTEL INDUSTRY 2020 OUTLOOK Oxford 2-2020 final.pdf · Houston Detroit San Diego...
Transcript of US ECONOMY AND HOTEL INDUSTRY 2020 OUTLOOK Oxford 2-2020 final.pdf · Houston Detroit San Diego...
Navigating the slowdown
Adam Sacks
President
Tourism Economics
February 2020
US ECONOMY AND HOTEL INDUSTRY 2020 OUTLOOK
Agenda
Outlook for the economy
State of the US lodging sector
Travel sector prospects
Lodging outlook
ECONOMIC OUTLOOK
Global activity recently showing signs of bottoming out
30
35
40
45
50
55
60
65
2000 2003 2006 2009 2012 2015 2018
Services Manufacturing
Source : Oxford Economics/Markit
World: PMIs
Index
Expansion
Contraction
And leading indicators pointing to early-2020 pick up
-3
-2
-1
0
1
2
3
4
5
6
30
35
40
45
50
55
60
65
2001 2004 2007 2010 2013 2016 2019
Global composite PMI (Adv two months, LHS)
Global GDP (RHS)
Index
Source : Oxford Economics/Haver Analytics/Markit
World: GDP & PMI
% y/y
But then the coronavirus hit…
This time is different because of China’s global role
0
2
4
6
8
10
12
14
16
18
GDP Total imports Non-food and non-energyintermediate exports
2003
2018
China's importance to the world economy
Source : Oxford Economics/Haver Analytics
% of total • China share of overseas
travel to the US
• 1% in 2002
• 7% in 2019
• China is the #1 source of
international travel
spending in the US
Asia worst affected but US and eurozone not untouched
-0.7
-0.6
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
China Asia Pacific US Eurozone World
2020 2021
GDP revisions due to coronavirus
Source : Oxford Economics/Haver Analytics
pp revision to annual GDP growth
US trade flows have stalled
Corporate profits have narrowed
Investment intentions have fallen sharply
Global trade slowdown is having its effect
Services have been more resilient
The long, steady expansion has pulled unemployment down to 3.5%
The unemployment rate is the lowest its been in over 50 years (May 1969 it was 3.4%).
Household wealth has improved, and households have de-leveraged
Wages continue to outpace inflation
Despite recent volatility, consumer confidence is buoyant
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2016 2017 2018 2019 2020
Impact of BBA, 2018
Impact of TCJA, 2017
Source: Oxford Economics
US: Policy tailwinds diminish over timeReal GDP growth, Q4/Q4
BBA, 2018 = Bipartisan Budget Act of 2018TCJA, 2017 = Tax Cuts and Jobs Act of 2017
+1.0ppt
+0.3ppt
A slower 2020 is inevitable
STATE OF THE US LODGING INDUSTRY
TRAVEL PERSPECTIVES
People are traveling more than ever
2.7
3.2
3.7
4.2
87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
Room nights per capita, USAnnual room nights
Note: Seasonally adjustedSource: STR; Tourism Economics
2019 Q4: 3.9 room nights
per capita
Even in “severe recession” occupancy rates are higher than in the past three
2020 Severe Recession62.8%
1990-91 Recession62.0%
2001 Recession59.0%
2008-09 Recession54.6%
50%
55%
60%
65%
70%
1988 1992 1996 2000 2004 2008 2012 2016 2020
Hotel Occupancy RateLevels
Mild RecessionSevere RecessionBaseline
Source: STR, Tourism Economics
International inbound performing as expected
“We expect inbound travel
performance to remain tepid
in 2019 consistent with
recent monthly trends.”
Tourism Economics, January 2019
• After averaging growth of 6.4%
from 2011-2016, overseas
travel to the US has slowed
markedly.
6.4%
2.0%2.5%
1.3%
-1.4%-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
Average2011-2016
2017 2018 2019 2020 YTD
Overseas Visits to the US% change
Source: NTTO, Tourism Economics
For total inbound, a recession is underway
• Negative performance in 8 out of
11 months this year
• Total inbound is down -1.1%
through November of 2019
-8.0%
-4.0%
0.0%
4.0%
8.0%
12.0%
16.0%
US international inbound arrivals
Source: NTTO, StatCan, Banco de Mexico
% change y/y
A wide mix of performance last year
• Key emerging markets,
including China and
Brazil, contracted in 2019.
• Spain, Japan, and India
posted robust results.
-10% -5% 0% 5% 10%
Spain
Japan
India
France
South Korea
United Kingdom
Switzerland
Italy
Netherlands
Germany
Colombia
Australia
Brazil
China
US Inbound arrivals% change, Jan-Dec 2019
Source: NTTO
Visitors can get sticker shock from currency exchange
• The US is significantly
more expensive to
visitors relative to six
years ago.
50
60
70
80
90
100
110
2013 2014 2015 2016 2017 2018 2019
$US Exchange rates, $/LC2013=100, annual average
Source: Oxford Economics
China (-11%)
Brazil (-45%)
Mexico (-34%)
Canada (-23%)
EU (-16%)Japan (-11%)
UK (-18%)
Coronavirus impacts
• Based on historical precedent, a 25% drop in visits to the US from China is expected in 2020.
• The rest of Asia also likely to see a drop up to 10%.
• 1.6 million visits and $7.7 billion in visitor spending lost in 2020.
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
0
50
100
150
200
250
300
350
400
450 Actual
Counterfactual
Source: Tourism Economics
US Arrivals from China, SARS Impact
000s
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500 Counterfactual (no crisis)
Expected outcome
Source: Tourism Economics, NTTO
US Arrivals from China, Coronavirus Impact
'000s
Coronavirus hotel impacts
• 7.5 million hotel room nights will be lost in 2020 alone
• In 2020, 0.6% of US hotel room demand will be forfeited
2020 2021 2022 2023 2024
-0.4%
-0.3%
-0.3%
-0.2%
-0.2%
-0.1%
-0.1%
0.0%
Source: Tourism Economics, STR
US Hotel Room Nights from Chinese Visitors, Coronavirus Impact
% of total hotel room demand
City exposure to China
• Los Angeles and New York City are the largest US city destinations with 1.2 million and 1.1 million overnight visits from China in 2019, respectively.
• As a share of total overseas visitors to each city in 2019, Riverside CA, Los Angeles, and Seattle are most exposed to the Chinese market.
0 200 400 600 800 1000 1200 1400
Atlanta
Orlando
Philadelphia
Miami
Houston
Detroit
San Diego
WashingtonDC
Chicago
Seattle
Honolulu
Las Vegas
Boston
Riverside, CA
San Francisco
NYC
Los Angeles
Overnight Visits from China in 2019000s
Source: Tourism Economics.
0% 5% 10% 15% 20% 25% 30% 35%
Orlando
Miami
Las Vegas
Honolulu
Atlanta
WashingtonDC
NYC
Houston
San Diego
Chicago
Philadelphia
Boston
San Francisco
Detroit
Seattle
Los Angeles
Riverside, CA
Share of Overseas Visits from China in 2019%
Source: Tourism Economics.
Accuracy of current year demand forecasts released in January of each year
Source: STR/Tourism Economics
2.4 2.3
1.7
2.31.9
2.8
1.7
2.72.4
2.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2015 2016 2017 2018 2019
STR/TE January forecast demand growth
Actual demand growth
Demand forecasts have been consistently accurate
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
54%
56%
58%
60%
62%
64%
66%
68%
70%
87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19
Occupancy and ADR growth
Source: STR; Tourism Economics
Occupancy rate
ADR growth (right axis)
Occupancy (left axis)
2019 Q4
ADR growth
…but ADR has been renegade
Recent growth (2018 and 2019)
ADR gains
should be
here
…weak despite levels of occupancy
Compensation costs and ADRLeisure and hospitality sector compensation, index (2005=100)
Year-over-year growth
Note: Compensation costs for leisure and hospitality sector jobs (wages, salaries and benefits at accommodation and food service establishments)
based on Employment Cost Index.
Source: STR; BLS; Tourism Economics
85
95
105
115
125
135
145
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Compensation costs
ADR
0%
1%
2%
3%
4%
5%
6%
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Historical average: 2.3%
Recent average: 3.4%
Compensation cost growth
While increases in costs are eclipsing rate gains
Some pace data showing a rebound
• Weakness in
transient business
demand and in rate
for transient leisure
3.6%
0.8%
3.9%
-0.7%
1.5%
5.1%
-2%
0%
2%
4%
6%
Transient leisure Transient business Group
North America 12-month lodging outlookPerformance pace: Nov 2019 - Oct 2020
Bookings ADR
Source: TravelClick
But the underlying economic data indicate weakness in group
2.5%
5.6%
7.7% 8.0%6.9%
0.6%
-14.5%
4.5%
8.7%9.5%
4.1%
7.2%
1.8%
0.7%
4.4%
6.4%
2.3%
0.6%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Group lodging demand and capex spending
US, annual growth
Note: Capital expenditures measured as nonresidential fixed investment, private, real.
Source: STR; BEA; Oxford Economics
Capex
Group demand
Domestic air travel bookings showing some volatility
• Air passenger bookings
rebounded strongly in
January after a week
finish to 2019
-10%
-5%
0%
5%
10%
15%
Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
3-mo 6-mo
y/y % change, advance moving-sum (month of booking)
Source: Tourism Economics, ARC
Forward-Looking US Air Travel Bookings
And vacation intentions are holding
• Vacation intentions
remained above prior
year levels in each of
the past 13 months.
0
20
40
60
80
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
US Household Vacation Intentions% planning to take vacation in next six months
2018 2019 2020
Source: Conference Board, Tourism Economics
THE US LODGING OUTLOOK
3.8%4.2%
3.8%
4.7% 4.5%
3.0%
2.2%2.5%
1.0%
0.3%
0.6%
5.6%
4.2%
2.4%
1.4%
3.4%
1.5%
0.1%
0.7%0.4%
0.0%-0.3% -0.1%
-2%
1%
3%
5%
7%
9%
10 11 12 13 14 15 16 17 18 19 20 21
US Occupancy and ADR growth% change
Source: STR; Tourism Economics
ADR contribution
Occupancy contribution
2.9%
0.9%
0.0%
0.5% RevPAR
Expect flat RevPAR in 2020
STR and TE forecast (Jan-2020 release)
RevPAR
• 2018: 2.9%
• 2019: 0.9%
• 2020: 0.0%
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