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US hotel demand declines in 1st half of August  Aug 21, 2008

Occupancy at hotels in the U.S. has continued to decline through the first half of August, a market research firm said Thursday, leading analysts to predict that the industry will begin reducing rates to fill rooms.

For the week ended Aug. 16, Smith Travel Research said occupancy at U.S. hotels dropped 4.5 percent year-over-year to 68.7 percent.

Demand for hotel rooms has suffered in many U.S. markets as airlines have reduced capacity and consumers have dealt with higher gas and food prices by cutting back on discretionary spending.

As a result of weaker demand, average revenue per available room at U.S. hotels fell 1.7 percent to $73.65. Revenue per available room, or revpar, is considered a key gauge of a hospitality company's performance.

"Through the first half of August, preliminary numbers indicate that demand (room nights sold) is down, room revenue growth is slowing and supply growth continues," said STR Senior Vice President of Operations Bobby Bowers.

"Overall, a weak result, but better than we would have expected, given the difficult (comparisons to last year) and August's leisure orientation." said Citi Investment Research analyst Joshua Attie.

Analysts noted that negative revpar during the midweek indicates weakening demand by business travelers as well.

Meanwhile, the industry's average daily rate grew 3 percent to $107.18. Analysts questioned, however, if rate increases can continue if weak demand continues.

Citi Investment Research analyst Joshua Attie expressed concern that prices "could begin to deteriorate later this year and into 2009, as operators attempt to build a base of occupancy in a weak demand environment." He noted that rate declines are generally more harmful to hotel margins than revpar declines.

Oppenheimer & Co. analyst David Katz also said he believes continued occupancy deterioration will result in weakening rates.

Bucking the downward trend, the urban market outperformed the industry. Attie noted that urban hotels are likely benefiting from international demand and pre-booked group business.

The boutique segment was another exception, showing both occupancy and revpar increases. Katz said the solid performance by boutique hotels bodes well for Starwood Hotels & Resorts Worldwide Inc., which operates the W brand, and Morgans Hotel Group Co., which operates boutique hotels like the Delano and Shore Club hotels in Miami.

STR said it collects its data from more than 65 percent of the 4.6 million hotel rooms in the U.S.

US hotel demand declines in 1st half of August

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