At the end of March when western mountain destinations were reveling in a great winter season with increases in occupancy and rates and likely record-setting figures–the summer forecast was looking decidedly different. As of March 31, 2023 summer occupancy from May through October was down 13.5 percent compared to the previous summer at that time—and down 9.9 percent compared to the last pre-pandemic summer of 2019. And even though daily rates were up 6.8 percent at that time, the lower occupancy was resulting in a substantial decrease in summer revenues. Strategic rate management by properties during that time along with some serendipity in the markets is credited with elevating mountain lodging into a much more favorable position this month according to the most recent monthly Market Briefing released by DestiMetrics,* the Business Intelligence division of Inntopia. The momentum for overnight visits in mountain communities continued to recover even further during July bolstered by positive economic market news and a higher level of consumer optimism.
Although those occupancy and rate deficits posted back in March have not fully caught up with last summer’s pacing as of July 31, the comeback has been notable among the approximately 28,000 units in seven western states that participate in the monthly data collection.
July down slightly—but better than projected
July bookings that were down a concerning 17.2 percent at the end of March have shown a remarkable rally in the past four months. Occupancy for the month finished down a slight 1.9 percent compared to last summer with the Average Daily Rate (ADR) up a scant 0.8 percent for a moderate 1.1 percent decrease in revenue for the month. And while occupancy was down 7.6 percent to pre-pandemic Summer 2019, ADR was up 44 percent from four years ago to provide aggregated revenues that were 33.1 percent higher than July 2019.
Occupancy for the full summer still lagging, but rate strength is keeping revenue steady
Compared to last summer, occupancy on-the-books (which includes actual occupancy for May through July and reservations for arrivals from August through October), is down 2.2 percent compared to last summer at this time. Declines of varying amounts are occurring in all six months with September and October showing the sharpest drops. However, ADR is up two percent and is almost enough to offset the dip in occupancy but not quite as aggregated summer revenues are down a scant 0.2 percent. For the second consecutive month, year-over-year ADR crept up during July and is now up two percent for the summer although gains are marginal with August eking out only an 0.1 percent increase and October a moderate 1.5 percent increase over last year.
A comparison to Summer 2019 reveals a sharply different picture. Compared to that pre-pandemic summer, occupancy is down 8.2 percent with decreases in every month except October. Compensating for that drop in occupancy, daily rates are up an aggregated 41.8 percent to deliver a very strong 30.2 percent increase in summer revenues over four years ago.
“We have been tracking the slow but continued improvement in overall lodging performance for the past several months,” observed Tom Foley, senior vice president of Business Intelligence for Inntopia. “And while improvements in occupancy are good news for communities as a whole, the fact that room rates declined steadily in late winter and spring but didn’t decline any further in the past 45 days suggests that consumers may be emerging from the inflation doldrums.” Foley went on to point out that “particularly during July, improving financial conditions have bolstered the balance sheet of individuals with investments or savings and when combined with three consecutive months of wages outpacing inflation, consumers are showing more optimism about the coming months.”
Positive economic news for consumers including a markedly lower inflation rate, positive changes to the employment data, rising wages, and easing of fiscal policy by the Federal Reserve Bank played a role in boosting consumer confidence during July.
The Dow Jones Industrial Average (DJIA) shot up 4.2 percent, or 1,437 points during July and is the second consecutive month with a sharp increase in the Index—topping up the 3.7 gain posted during June and marking the third highest-ever closing for the DJIA.
The Consumer Confidence Index (CCI) and the Consumer Sentiment Index (CSI) both reflected the positive news on Wall Street and the economy. The CCI rose 6.3 percent to hit 117 points—its highest levels since July 2021 when the economy was largely re-opening and consumers were flush with cash and pent-up demand. Gains were recorded across all age groups and among different economic classes—including those making less than $50,000/year as well as those earning more than $100,000. The CCI is now 22.8 percent higher than it was one year ago. The CSI recorded an even higher level of positive sentiment by rising 11.2 percent during July to reach its highest level since October 2021. Although both indices reported that consumers felt better about inflation and employment prospects, in the CSI, sentiment of lower wage earners declined–triggered by ongoing concerns that wages wouldn’t keep pace with inflation in the coming months.
The national Unemployment Rate dipped again in July from 3.6 to 3.5 and nearing an all-time low seen earlier this year and in 1969 as job creation moved downward with 187,000 new jobs added during the month. “This is a delicate balancing act for the Federal Reserve as fewer available positions indicates a slowing economy, but the moderately high number of new positions means that job seekers can find a spot in the workforce,” explained Foley. “Wages rose 4.4 percent last month which has workers ahead of the inflation rate for now, and that additional spending money allows suppliers to keep prices high—which can sustain inflation,” he cautioned.
The national Inflation Rate rose 3.2 percent during July compared to last month’s three percent increase and marks the first increase in the inflation rate since June 2022. The Consumer Price Index (CPI) also edged up 0.2 percent in July from June for the eighth consecutive month led by fuel and piped gas. Daily items such as meat, poultry, dairy, and produce also increased. “Rents also rose during July which could impact discretionary spending with lower income earners, but electricity dipped down a bit, and for travelers, a dramatic but likely temporary 8.1 percent decline in airfares during July is welcome news,” offered Foley.
First peek for upcoming winter
Although still very early in the winter booking season, on-the-books occupancy for November through January is up 3.2 percent compared to last year at this time with varying gains in all six months. November is currently the leading growth month with a 10.6 percent increase over November 2022. ADR is up a moderate 3.5 percent for those months with January showing the largest gain in rates—up 6.7 percent
When compared to the last pre-pandemic winter booking season four years ago at this time, occupancy is up 2.6 percent and ADR for the first three winter months is currently up a strong 38.2 percent with increases in all three months.
*Booking Pace: in a year-over-year comparison, the booking pace in July for arrivals in July through January was up 8.4 percent which tops last month’s 6.9 percent—but is well below the 22.4 and 27.4 percent gains posted earlier in the year. The pace was driven almost entirely by guests booking visits for arrivals in July through September with double-digit increases for July and August to boost overall summer results with these short-lead bookings. The longer-lead bookings for October through January were all down compared to last July for those same months.
*Performance by price tercile: during July, lower-priced properties with an ADR below $250 raised their year-over-year daily rates 0.8 percent after five months of either keeping rates flat or reducing them—but experienced a softening in occupancy with the uptick in ADR. The result was a one percent increase in revenue. Middle-tier properties with an ADR of $250-$400 per night also improved their ADR during July—up 1.1 percent but with no change in occupancy, their revenues were up just 1.2 percent. High-end properties with an ADR of $400 per night or higher were the only category to reduce their rates during July—down 1.4 percent. That slight reduction led to a 3.9 percent increase in occupancy and offset the lower rates to deliver a 2.6 percent increase in July revenues.
“Lodging properties this summer are benefitting from the warm weather and good economic news,” noted Foley. “Even though ADR for the summer only increased slightly and revenue was nearly flat, it is a vast improvement from 90 days ago and the brisk July booking pace helped fill in most of the year-over-year summer deficit with a healthy increase in arrivals for July and August. We still have a few months to go but the summer season is looking a lot sunnier for lodging properties as of July 31,” he concluded.