U.S. Accommodation Sector: Skift Research Estimates 2019

by Haixia Wang + Skift Team - May 2019

Skift Research Take

As one of the largest travel sectors, accommodations will continue to grow as travel becomes an even more integral part of consumer lifestyles. Yet it remains to be seen if the disruption from alternative accommodations will fundamentally shake up the entire sector.

Report Overview

We launched our first U.S. passenger airline sector estimates report in January. In this report, we continue our effort of sizing up the travel industry by focusing on accommodations, another of the largest and most important travel sectors. We estimate that the total accommodation sector in the U.S. generated $264.5 billion revenue in 2018. Among that, alternative accommodations — short-term lodging in private homes or apartments — reached nearly $23 billion, accounting for 8.6% of the market. After a flat 2018, we expect a 3.4% rebound in 2019 and forecast total revenue for the sector to reach $273.5 billion.

We arrive at our proprietary estimates by analyzing our internal consumer survey data, relevant data aggregated in our previous reports, as well as many reputable sources, including the U.S. Economic Census, U.S. Census Service Annual Survey (SAS) and Quarterly Services Survey (QSS), U.S. Bureau of Economic Analysis Travel and Tourism Satellite Accounts, and Oxford Economics.

What You'll Learn From This Report

  • U.S. accommodation sector market size estimates, 2017–2019
  • U.S. market size estimates for alternative accommodations, 2017–2019
  • U.S. market size estimates for hotels and motels, casino hotels, B&B, and other traditional accommodation segments, 2017–2019
  • Key operational and performance estimates for 2019, including number of companies, properties, guestrooms, and corresponding revenue.
  • Top 10 hotel and resort brands market shares, 2017–2018
  • Proprietary Rakuten Intelligence data on brand portfolio performance metrics of Marriott, Hilton, Hyatt, and IHG
  • Analysis of U.S. Economic Census data

2019 Positive Market Outlook for 2019

In our year-end Skift Global Travel Economy Outlook 2019 report, we presented that 2018 was a solid year of growth for travel, both in the U.S. and globally. Specific to the accommodation sector, all global public hotel brands posted strong growth in 2018 and top executives of those brands were confident of a healthy 2019. Similarly, in our inaugural market estimate report for the U.S. airline sector, we estimated that the U.S. passenger airline sector grew 4.5% in 2018 to reach $167 billion.

However, the overall U.S. accommodation market painted a different picture. According to the Quarterly Services Survey (QSS) by the U.S. Census Bureau, revenue for the traveler accommodation sector was down year-over-year for the first three quarters of 2018 and only increased slightly in Q4. For the whole year, revenue was down 1.8%.

Note that Census data doesn’t include short-term rentals in private homes or apartments. As alternative accommodations has become a significant segment, and in many ways, a mainstream instead of an alternative, within the accommodation space over the last decade, we believe it’s time to update the terminology and frameworks to incorporate alternative accommodations into the accommodation sector. Much needs to be done. For now, we calculate the total accommodation market size by adding up traditional and alternative accommodations. Echoing the Census, we estimate that excluding alternative accommodations, total accommodation revenue was down 1.8% in 2018. The number was essentially flat if counting short-term home rentals.

Why is the accommodation sector underperforming despite the overall travel market growth? We believe this sluggish market performance of the accommodation sector is due to the impact of alternative accommodations, which we will delve into in more detail in the next section.

As we previously forecasted, we expect to see stronger growth for the travel market in 2019 (see “Skift Global Travel Economy Outlook 2019” for more details). Up to this point, all signs have pointed to the same conclusion. We estimate that the total U.S. accommodation sector will see a 3.4% increase in 2019 to reach $273.5 billion, fueled by both domestic and international traveler spending. However, traditional accommodations including hotels, motels, casino hotels, resorts, and B&Bs, will only grow 0.8% in revenue. The rest of the revenue growth will come from alternative accommodations.


Alternative Accommodations Passing 10% Share Threshold in 2019

As we are in the process of producing this report, alternative accommodations is stirring up the travel space by a new wave of news. Marriott, the world’s largest hotel company, announced that it was launching Homes & Villas by Marriott International on April 29, 2019, officially getting into the home rental business (see “Marriott Is Officially Getting Into the Homesharing Business” for more coverage). The initial launch includes 2,000 homes in the United States, Europe, the Caribbean, and Latin America. Shortly after the announcement, Hilton’s CEO reiterated that they didn’t feel the pressure to jump into homesharing. When asked if Hilton would also move into homesharing business during its earnings call, Nassetta responded, “I think the short answer is at the moment, that’s not something that we’re pursuing. The longer answer is, which is consistent with my prior commentary, is we fundamentally think that homesharing is a different business.” A couple of days later, Expedia Group stated that their short-term rental business of vacation homes and apartments is facing search engine optimization headwinds, in an effort to justify the sharp deceleration of Vrbo’s gross bookings in Q1 2019 — Vrbo, rebranded from HomeAway, saw a mere 8% YOY increase in gross bookings in Q1 2019, compared to its 46% gross bookings increase in the first quarter of 2018 ( “Expedia Faces Stiff Headwinds in Rebranded Short-Term Rental Business”).

Yet, none of this is surprising. Nobody can afford to ignore the homesharing business anymore, both for its increasing market share and the changing consumer expectations during travel that it has helped to usher in. We estimate that alternative accommodations generated $22.7 billion in revenue in 2018, accounting for 8.6% of total revenues generated by the entire accommodation sector. We expect the sector revenue to grow 30% in 2019 to reach nearly $30 billion. This will bring alternative accommodations up to nearly 11% of the total market.

 

It is encroaching on the hotel industry

In contrast with the robust growth of alternative accommodations, traditional accommodations was down 1.8% in 2018. As we stated above, despite the political and market headwinds, the overall travel market had a positive year in 2018. Furthermore, outside travel, consumer confidence was high and consumer spending on all major sectors was strong. For instance, retail and food and drinking services, the two biggest consumer sectors, both posed strong growth in 2018: total retail sales grew 4.8% year-over-year to $5.3 trillion and total revenue for food and drinking services grew 6% to $717 billion.
These all indicate that the stagnant performance of the accommodation sector is an outlier and leads us to conclude that the short-term home rental business has a role to play in the market shift.

Previously, a good number of research analyses of the impact of alternative accommodations on the hotel industry suggested that the effect is limited, including Skift Research’s own analysis in our Airbnb deep-dive report last year. The challenge is, much of this research only focused on specific metrics (such as the compression – high-occupancy – nights study by STR) or specific hotel segments (such as Skift Research’s performance analysis of major public hotel brands). Rarely has existing research looked at the total revenues from the entire hotel sector universe and the entire alternative accommodations universe side by side.

Looking ahead for the rest of 2019, we forecast a slight rebound of the traditional accommodations market of 0.9% over 2018, thanks to the stronger market outlook in 2019. Long term, we will continue to see alternative accommodations eat away at hotel stays and revenues. However, as major players in each camp continue to move into each other’s territory, convergence between home and hotel might be on the near horizon.

In the next three sections, we present our estimates on a few other key metrics in the traditional accommodation sector.


Traditional Accommodation Sector by Segment

Hotels and motels, which include summer resorts and corporate-run timeshares and vacation rentals, makes up about three-quarters of total revenues; Casino hotels account for about 24%, and Bed and Breakfast Inns and others accounts for only 1.4% of total revenue. These revenue shares have remained relatively stable over the past few years.


Traditional Accommodation Sector Key Operational and Performance Indicators

For 2019, we estimate that hotels and motels, the largest accommodation segment, will generate $181 billion in total revenue. Despite the concentration of the big public hotel companies, we see there are over 36K hotel companies in the U.S. On average, one company owns or manages 1.5 properties and 136 guestrooms. Average revenue per guestroom, including food and beverage and all other operating revenues, amounts to nearly $37k.


Top 10 Hotel Brands Revenue and Market Share

Compared to airlines, where the top four carriers make up 85% of the market share, the accommodation sector is much more fragmented. Collectively, the top four companies, Marriott, Hilton, Hyatt, and Wyndham Destinations, only accounted for 13% of total traditional accommodation revenue in 2018. This market fragmentation paves the way for the rise of online travel agencies (OTAs) as important intermediaries, unique to travel.

What’s also worth noting is how big the traditional vacation rental market is — traditional in the sense that alternative accommodation is also often referred to as vacation rentals. Out of the top 10 companies, four own or manage non-typical hotels such as all-inclusive resorts, summer resorts and timeshare rentals.

 


Proprietary Rakuten Intelligence Data on Marriott, Hilton, Hyatt, and IHG

In this section, we present market shares and other performance metrics of major brand portfolios under Marriott, Hilton, Hyatt, and IHG. This data is shared with us by Rakuten Intelligence, one of the world’s largest e-commerce consumer panel services. As shown above, the four hotel brands collectively generated $27.9 billion revenues in 2018, making up 15.5% of the total hotel sector market. And all these brands own, manage, and franchise a broad portfolio of hotels. The proprietary Rakuten Intelligence data portrays a detailed picture of how each major brand of these four companies stacked up in bookings, including total number of bookings, total nights booked, and total bookings revenues.

Methodology: Rakuten Intelligence online hospitality data is extracted from transactional emails of millions of online shoppers, with detailed, longitudinal measurement of the traditional and alternative online travel industry, including hotels, room shares, flights, and car rentals.

Emphasizing the central role of online booking in travel and hence the level of accuracy of using online transactional data to measure the market, Ken Cassar, VP of strategy and insights at Rakuten Intelligence, shared with us,”Online booked travel is at the core of the lodging business today, where consumers and unmanaged business travelers have fully embraced the convenience and utility of both OTA and hotel brands’ websites and mobile apps. Online bookings have deeply penetrated the full range of hotel brands’ offerings, from Holiday Inn Express to Ritz-Carlton and everything in between.”
Note that the data below is based on transactional email receipts, which normally only include room bookings. The share numbers don’t take into account food and beverage and other revenues.

Marriott

 

Hilton

 

Hyatt

 

IHG


Economic Census Data Deep Dive

In this section, we present our aggregation, normalization, and analysis of a few metrics from the previous Economic Census. Estimation and forecasting of these metrics is laborious, but we believe the historical data provides valuable benchmarks. We will add corresponding comparative data after the release of the 2017 Economic Census.

The following data is further evidence of the market fragmentation in travel accommodation. In 2012, out of the 33,447 hotel companies, only 113 generated $100 million or more in revenue. That’s less than half a percentage of the total market.

 

The 2012 Census breaks down very detailed product line revenues, down to items such as laundry services and vending machines. We list revenue shares of specific service lines that are above 0.2% below.

 

 

 

 

Corporate travel contributed to 30% of total sector revenue in 2012. From a few other sources we’ve seen, this share has remained stable over the past few years.

 


Methodology

Skift’s accommodation sector estimates are based on Skift Research’s analysis of our internal consumer survey data, data and insight aggregated from our previous reports, and multiple third-party industry sources, including the U.S. Economic Census, U.S. Census Service Annual Survey (SAS) and Quarterly Services Survey (QSS), U.S. Bureau of Economic Analysis Travel and Tourism Satellite Accounts, U.S. Travel Association, Oxford Economics, STR, Rakuten Intelligence, and Statista.

Further Reading