Low supply growth in mature markets
As noted in Starwood Hotels and Resorts’ (HOT) 4Q14 earnings call, the hotel room supply currently isn’t enough to bring occupancies down. The select serve segment is witnessing construction activity. There isn’t much industry supply growth in the upper upscale and luxury segments. This means that the industry supply is currently less than demand in the select serve segment.
The above chart shows that the US demand growth continues to outpace supply. In 2015, the average forecasted demand growth is 2.7%—compared to 1.3% growth in supply.
According to the World Travel Organization the estimated number of international arrivals has more than doubled in the past 20 years. There were 1.1 billion visitors in 2014. Also, the extension in the visa validity terms from one year to ten years in the US and China would significantly boost visitor arrivals. It would reduce the red tape for frequent travelers.
This development will benefit hotel companies like Starwood, Hilton (HLT), Marriott (MAR), Hyatt (H), and Wyndham (WYN). It will also have a positive impact on ETFs like the PowerShares Dynamic Leisure and Entertainment Portfolio (PEJ), the iShares U.S. Consumer Services (IYC), and the Consumer Discretionary Select Sector SPDR Fund (XLY).
The above chart shows the evolution of tourist arrivals from different regions of the world from 1980 through 2030.
Key takeaways from 4Q14 earnings call
Frits van Paasschen, former president and CEO of Starwood, said, “The long-term drivers demand growth for global travel and for high-end lodging brands, remain firmly in place. At our hotels, occupancies continue to rise even as we expand our footprint… we view our global geographic mix as a long-term strength. The trend lines tell us that we’re well positioned as the leader in markets where another 1 billion people will move to cities in the coming 20 years.”