Solid winter revenues but summer occupancy is down despite softening rates
Although a handful of resorts are still open, the Winter 2022-23 ski season is ending on a high note courtesy of extraordinary snowfall across most regions but particularly throughout the West. The most recent data released by DestiMetrics, part of the Business Intelligence division of Inntopia in their analysis of lodging properties in seven western states, includes the preliminary findings of the National Ski Areas Association (NSAA), which reported a record 64.7 million skier/snowboarder visits to US resorts this winter. And while not all of those daily visits included an overnight stay but all that snow elevated occupancy and revenues to a much stronger finish than projected in the face of high inflation and rising interest rates when the season started back in November in the face of high inflation and rising interest rates. But with snow no longer able to work its magic for mountain destinations in the summer, the upcoming months are showing considerable slowing from both the winter season and previous summers. Data collected through April 30 continues to show notable declines in on-the-books occupancy for the upcoming summer as well as softening lodging rates.
This month’s Market Briefing offers both a single year-over-year comparison alongside a comparison to four years ago—April 2019 during the last full pre-pandemic ski season and last pre-pandemic full summer season. Comparisons to two and three years ago are skewed because of the dramatic impact the pandemic had on travel for those years-- from complete shutdown to tentative re-openings followed by huge surges due to pent-up demand. The Briefing also includes some sharp warnings about how the economy is finally starting to rattle the confidence and vacation planning of summer mountain travelers.
Strong finish for April lodging
Courtesy of excellent late season conditions, occupancy for April was up 5.3 percent in a year-over- year comparison while the Average Daily Rate (ADR) was up a modest 2.7 percent. That growth in both categories resulted in aggregated revenues that were up a healthy 8.1 percent compared to last year. A comparison to April 2019 shows that occupancy was up a strong 12.4 percent and when coupled with ADR that was up a whopping 53.6 percent over four years ago, brought in a 72.6 percent increase in revenues for the month.
Summer occupancy looking shaky
In sharp contrast to the stellar winter, economic challenges are exerting considerable influence on bookings for the upcoming summer. On-the-books occupancy for the summer season from May through October is down 9.1 percent compared to last year at this time with decreases in all six months. This is a slight improvement from the 13.3 percent decline for summer reported at the end of March but was only achieved with declining room rates. Summer ADR is now up a moderate 2.8 percent with increases in every month except October which is down a slight 0.4 percent. This is significant retraction in rates from March 31 when they were up a relatively strong 6.5 percent. The improvement in occupancy driven by softer rates is a clear indicator of economic forces impacting travel at mountain destinations.
“For almost two years, lodging properties have been able to hold rates and depend on occupancy being driven by either pent-up demand or in the case of the past winter, good snow,” explained Tom Foley, senior vice president of Business Intelligence for Inntopia. “But with most of the pent-up demand met during 2022 and with snow a non-factor in summer bookings, we’re seeing traditional market forces coming into play in mountain communities and are making it very clear that travelers are a lot more rate sensitive this summer than they have been for a very long time,” he continued. He went on to clarify how rate is currently shaping the summer in these destinations. “The softening in daily rates over the past 30 days is directly correlated to improved summer occupancy levels and lodging properties are going to have to pay attention to that price sensitivity in the weeks ahead.”
Foley also noted a certain irony in how snow is now having an impact on summer. “May is currently the softest month of summer and that probably has something to do with all the snow still remaining--which is causing some special events to be either pushed back or cancelled as mud season persists a lot longer this year in many locations.” Foley also pointed out that “the modest 2.8 percent rate increase is not enough to offset the lower occupancy and the net effect is a 6.5 percent decrease in summer revenues in a year-over-year comparison—the first seasonal decline since immediately after re-opening in 2020.”
Comparing to the same time four years ago—the last summer before the pandemic hit—occupancy is down 8.8 percent but the daily rates are much higher than the summer of 2019 and are up a dramatic 40.8 percent to deliver and impressive increase in revenue of 48.4 percent.
A “win” for this past winter
From a rather tentative start back in November when occupancy was looking tepid and the economic news was looking challenging, in a year-over-year comparison, Winter 2022-23 eked out an 0.2 percent gain in occupancy with declines in four the six months—all but January and April. But the real victory for lodging properties was daily rates and revenues. The ADR for the winter finished up 5.9 percent over last year and along with the tiny uptick in occupancy, provided a respectable 6. 1 percent increase in revenues over last winter.
The far more striking comparison was to four years ago and the last full pre-pandemic season. Occupancy was down 0.4 percent but ADR was up a dramatic 43.1 percent to deliver an impressive 43.6 percent increase in revenues from four years ago.
“Widespread and truly remarkable snow conditions this past winter went a long way to encouraging skiers to shrug off some of the worrisome economic news and indulge in some overnight stays despite high rates—and setting an astonishing new record for skier visits this season,” noted Foley. “But mountain destinations cater to a more price-sensitive consumer during the summer months and with high inflation and rising interest rates persisting and discouraging big-ticket purchases such as travel, the unchecked pattern of escalating daily rates appears to be coming to an end,” he predicted.
For the second consecutive month, the Dow Jones Industrial Average (DJIA) rose during April to close 824 points or 2.5 percent higher than in March. This marks only the second time since November that the Index has managed monthly back-to-back increases while recording the highest monthly close since then. Continued positive data about jobs and earnings along with a slowing inflation rate was given credit for buoying financial markets.
Once again, the Consumer Confidence Index (CCI) and the Consumer Sentiment Index (CSI) had mixed results as they flip-flopped and changed directions from last month—and each other. The CCI dipped down 2.6 percent during April to 101.3 points from the 104 points posted in March and marks the fourth decline since the beginning of the winter season. “One of the most important findings was that consumers’ expectations about inflation didn’t change during the month but their stated intentions to make a major purchase such as a home, car, major appliance or travel has declined,” cautioned Foley. In contrast to the CCI, the CSI tabulated by the University of Michigan, moved in the opposite direction and rose a modest 2.4 percent to 63.5 points following a sharp decline in March.
The national Unemployment Rate dipped again during April from 3.5 to 3.4 percent—its lowest level since 1969—and was boosted by employers adding an unexpectedly strong 253,00 new jobs to payrolls. Wages also posted a 4.4 percent gain compared to last year at this time and narrowing the gap between earnings and inflation. However, the strength of both jobs and wages isn’t cooling inflation and could trigger the Federal Reserve Bank to raise interest rates again—despite indicators that they would be pausing on hikes for the time being.
The national Inflation Rate—the difference in the price of goods this year versus last year—edged down from five percent in March to 4.9 percent in April which is slightly better than predicted. This is the tenth consecutive decline in annual inflation and its lowest level since April 2021. But importantly, prices were actually up 0.4 percent from last month as the Consumer Price Index increased during April and putting some pressure on consumers despite a lower annualized inflation rate.
Winter wrapped but watching and waiting summer shifts
*Occupancy rallied and managed an 0.2 percent increase in aggregated occupancy for the full winter after struggling all season. But summer is an entirely different story with occupancy down 9.1 percent from last year at this time.
*ADR held steady through the winter and finished up 5.9 percent over last year but the summer forecast as of April 30 is dimmer as rates are up 2.8 percent for the summer and lower than it was just one month ago.
*Booking pace during April for arrivals in April was up an impressive 35 percent over last year at this time fueled by abundant snowfall but there were also increases in bookings for June through September arrivals with the months of June and August both soaring 20 percent. “Room rates are the major contributing factor to the gain in booking pace for those months as the current pace of rate increases is much slower than at any other time in the past three years,” clarified Foley.
*Length-of-Stay has been down year-over-year for the past 13 months but April was the first month since February 2022 that it extended—up 0.11 nights this April compared to being down 0.14 nights last year—a strong reversal due to the exceptional late season conditions. Moving into the summer months, the average length of stay has dipped down 0.07 nights compared to last year and is down a very sharp .027 nights compared to Summer 2019 . “The numbers don’t sound that big but shorter stays are a major contributor to slowing demand and put simply, for every 10 nights booked this summer, there are 2.7 nights fewer than 2019 and that is a substantial decrease,” warned Foley.
“The winter season certainly finished with a bang with record-setting skier visits and revenues but so far summer is having trouble finding any momentum,” cautioned Foley. “Shorter stays and fewer bookings are starting to force a more flexible approach to rates so as pretty stiff economic headwinds continue to blow, lodging properties are facing a very different reality after 24 months of easy, high rate bookings,” he continued. “Softer daily rates will be welcome news for consumers but lower rates and soft demand combine to create revenue challenges for lodging properties, so careful rate management and added-value elements become increasingly relevant for mountain destinations as they navigate the delicate balance of attracting guests and managing the bottom line,” he concluded.