Performance recovery is ramping up for U.S. hotels as the first quarter of 2022 nears a conclusion. However, that recovery is meeting potential headwinds from the war in Ukraine and subsequent further increases in gas prices. While the circumstances of 2022 are unique, historical data suggests that the latter of those two global issues will have a limited impact on U.S. hotel demand even as the cost for leisure and business travel increases further.
Using data from the U.S. Energy Information Administration, gas prices have hit an all-time high on a nominal basis but remain lower than the July 2008 peak on an inflation-adjusted basis (real). The pain at the pumps adds to already rising living expenses Americans were encountering because of inflation.
Fortunately for hoteliers, an overlay with STR’s historical data back to 1990 shows the correlation between real gas prices and room demand (seasonally adjusted) to be only a moderate .54. This means that very little of the demand change can be explained by changes in gas prices. A strong correlation would be considered 0.7 and above.
Further, the correlation between real gas prices and real revenue per available room (seasonally adjusted) is just 0.16, suggesting little to no impact on overall top-line performance. Historically, gas prices have peaked when lodging demand was strongest (i.e. the summer).
The effects on American wallets are real, but based on historical comparisons, the impact from rising gas prices has not been large enough to deter travelers from making trips that require hotel accommodations. It is more likely that travelers have made different purchasing choices through the level of lodging they select or in other travel expenses, such as meals and entertainment. Simply point, it is not a question of “if” Americans are traveling but “how” they travel during periods with higher gas prices.
Additionally, travel is generally skewed toward higher-income individuals and families, who are more able to absorb higher costs. With that in mind, it is also important to note that pent-up demand from the pandemic could also offset the negative impact from those who choose to forgo travel because of costs.
Airlines will likely increase fares as fuel costs increase. As business travel recovers, those higher airfares will probably be attributed to “the cost of doing business” and will not impact corporate transient and group demand. Just like with higher prices at the pump, higher airfares will likely not impact travel behavior much.
The administration has projected that gas prices will only rise further given the latest round of U.S. sanctions on Russia. While no immediate impact on hotel performance is expected, such a sharp increase on top of already high costs could have more of an effect than previous times with high gas prices.
STR will continue to monitor the situation closely as the ever-important spring break season is upon us, and summer travel is right around the corner.
