In the first quarter of the year, America’s economy hotels experienced a decrease in revenue per available room compared to the previous year, with brands like Econo Lodge, Days Inn, Super 8, and SureStay performing less well than higher-end brands. This trend may be related to inflationary pressures impacting the budget travel crowd, leading to softer performance in the economy hotel segment. While some Sunbelt cities have seen strong demand, economy-class properties have had the weakest performance overall.
While revenue per available room for economy hotels is slightly better than before the pandemic, it is still weaker than other hotel segments. Analysts have noted concerns for Wyndham and Choice Hotels based on STR/CoStar data showing a year-over-year decline in revenue per available room for these companies. However, they still like the stocks of these companies for other reasons and are waiting for the companies to share their performance results before drawing firmer conclusions about trends.
Surveys have painted a conflicting picture of traveler sentiment, with some facing cost pressures impacting their travel decisions while others continue spending big on trips. The inflation challenge appears to be from non-travel costs eating into people’s travel budgets, leading to changes in trip plans to save money. Despite pricing pressure, people with lower spending may choose to spend less or travel at off-peak times rather than trade down to cheaper hotels.
While the lower end of the hotel market is softening, the overall demand picture for U.S. hotels remains strong. Well-off Americans continue to plan big trips, with a survey showing an increase in the percentage of respondents planning a vacation this year compared to the previous year. There is optimism for the accommodations sector, although some challenges remain, particularly in the economy hotel segment.
The accommodations sector stock index performance year-to-date shows the performance of hotels and short-term rental sector stocks within the ST200, which includes companies publicly traded across global markets. The index combines the financial performance of nearly 200 travel companies worth more than a trillion dollars into a single number. Overall, the performance of hotels and short-term rental sector stocks is reflective of the trends seen in the economy hotel segment and the broader travel industry.
