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Like the larger economy, the hotel industry in the U.S. is showing signs of recovery, with 2010 being the most successful year for major markets such as New York City in terms of visitors to the area. But would it be too far-fetched to conclude that the industry has totally recovered?
The economic slump undoubtedly caused one of the most dramatic downturns in the history of the hospitality industry. However, my answer is "yes." There's plenty of strength in the resurgent hospitality industry -- and perhaps plenty of money to be made, too.
We've got a pulse!
In August 2010, PricewaterhouseCoopers projected robust growth for the lodging industry in 2011. That prediction built upon a forecast from Macroeconomic Advisers that expected slowing growth for the U.S. economy during the latter part of 2010, but a revival in 2011. Based on what we know about projections, however, perhaps it's best to take a look at some real numbers.
Big players such as Starwood Hotels & Resorts Worldwide (NYSE: HOT ) and Marriott International (NYSE: MAR ) are showing definite strength. The two have been defying the sluggishness we're seeing in the larger U.S. economy and are climbing out of the downturn. As I'll mention in just a second, growth is being fueled by increasing global demand and improvement in the key performance metrics (occupancy, average daily rate, and revenue per available room). After ending 2010 with a profitable fourth quarter, they have been able to continue the momentum into 2011. The New York tourism industry hit record highs in 2010 by attracting 48.7 million tourists, which compelled Mayor Michael Bloomberg to say that "tourism is our replacement for industry."
The facts speak for themselves. A report from industry group STR for the week ending Jan. 29, for example, confirms that the U.S. hotel industry has showed improvement in all of the three metrics. The average selling price per room for transactions increased 86% from 2009, and it's likely to increase further. In 2011, occupancy is expected to increase by 1.8 percent, ADR by 4.2%, and RevPAR by 6.1%. The monthly demand for U.S. hotel rooms has risen by 9% or more according to NCREIF and Smith Travel Research. The predictions of the upward trend have also been confirmed by the U.S. Department of Labor Office of Research and the European Travel Commission.
I suppose the only question to ask now is: Should Foolish investors start getting their brokers on the line? Perhaps, but only if you know what you're doing, and what you should look for. As always, a little extra research goes a long way.
A piece of the action
Wall Street's recovery has stimulated mergers and acquisitions in the hotel industry. And savvy investments today on the part of larger public companies such as 7 Days Group Holdings Limited (NYSE: SVN ) , Intercontinental Hotels Group (NYSE: IHG ) , and Wyndham Worldwide (NYSE: WYN ) could definitely enhance the performance of these companies' respective shares in the years to come. I wouldn't call it a sucker bet, presuming you're willing to stay in for the long haul. With a total of 1,289 hotels sold or transferred in 2010, consolidation is clearly a trend worth watching. Foolish investors should definitely pay attention.
The Foolish bottom line
Clearly, I'm quite sanguine about this larger industry. But let me sound a note of caution: Considering the massive reduction in discretionary income we've just witnessed, the recovery will perhaps be slower (or even considerably slower) than my optimism might have made it sound. But I will surely buy the ETC's advice to "take encouragement from the broad range of positive signals." Besides, the increasing demand for hotel rooms and the recovering international tourism will certainly keep the industry afloat until growth turns back around. Until then, take a look at the industry, but do keep your high-beam headlights on.