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Cumberland Valley hotels pull in more customers, even as rates stay stubborn

This article was published in the Cumberland Valley Business Journal on May 27, 2016.

By Zack Hoopes

The financial gamble inherent in the hotel business isn’t all that different than any other commodity market.

That is to say, building a hotel — or an oil rig — is a bet on how much more capacity you can create before demand starts to flat-line.

Currently, the tourism economy in the United States appears to be reaching that crucial tipping point, the only question being when. But Cumberland County, taken in isolation, is a much less volatile market, analysts have found.

“Our industry has a tendency to over-build when times are good,” Lynsie Bennett, an analyst for Smith Travel Research, explained at a recent forum of the Cumberland Area Economic Development Corporation.

But in Cumberland County, Bennett found, “the continued demand growth you’re seeing indicates that you’re able to absorb that supply and continue to grow.”

Net hotel room demand in Cumberland County, as a running 12-month average, is up 9.9 percent as of March. This is now outpacing the previous demand peak in 2011, which topped out at 9.3 percent after a year-long run from a recessionary trough of negative 7.8 percent in 2010.

At the same time, total room supply is up 3.6 percent over the previous year, as of March. But in the grand scheme of things, this amounts to a fairly slow trickle of new room inventory.

Revenue rises

Year to date, Smith Travel found that the county’s revenue per available room — occupied or not — was up 6.1 percent. Net industry revenue for the first quarter was up 12.7 percent, to $14.3 million.

“The good news is that we’re not near the level of construction that we were at in 2007 [immediately before the crash],” Bennett said. In fact, U.S. hotel room supply continued to accelerate until late 2009, according to STR numbers, since many hotels had been planned pre-recession and costs were already sunk.

National statistics are looking somewhat tepid. Nationwide occupancy was down about a half-percent in March, even though another 153,000 rooms are scheduled to be built across the nation in 2016. Revenue per room was still up, continuing a 73-month stretch of positive numbers, Bennett noted, but was slowing.

Despite conventional wisdom, growth in room rates and growth in occupancy don’t necessarily go hand-in-hand, Bennett said.

“Historically there has been little ADR [average daily rate] change even when occupancy is growing,” she noted. Rather, occupancy expansion drives up revenue in the long term, while rate hikes are typically to take advantage of short-term tailwinds.

This is an especially good model for Cumberland County, where rate growth has been stubborn. Average room rates in the Carlisle area are $69 per night and $88 per night on the West Shore. Contrast this with the $124 average for Dauphin County.

Cumberland also shows strong seasonality — and a somewhat unusual seasonal inversion between weekday and weekend interest.

Weekday occupancy, according to STR data, hits a low of around 40 percent in January, but rises to a peak of around 70 percent in July. On weekends, however, hotels peak at around 85 percent full in the summer, but weekend winter occupancy plummets to around 35 percent, with hotels more vacant on weekends than weekdays.

Diversity fills the rooms

If Cumberland County’s hotel numbers have proven remarkably resilient — if somewhat unimpressive in earnings — compared to the national tourism market, the natural question is ‘why?’

This is likely due to the area’s diverse, but also somewhat amorphous, list of attractions.

The most concrete of these that comes to mind are the car shows put on by Carlisle Events, making Cumberland widely known as the vintage auto capital of the east coast. So much so that Carlisle Events recently unveiled plans for a Hilton-branded hotel at the former IAC/Masland factory site, which the event promoter had purchased some years back.

“We’re in a position now where the children and grandchildren of our participants are coming,” said Bill Miller, Carlisle Events’ co-founder, during a recent discussion of the project. “Our customers are older for some of the classic car events, younger for the import event we’ve started recently. Overall, it’s a pretty wide base.”

But even Miller recognizes that, despite the events’ strength, a flagship hotel will need more than car show weekends to survive.

“Our goal is that we will fill the rooms in the summer, and things like Dickinson (College), the Army War College, the Youth Ballet, they’ll be able to keep it going in the winter,” Miller said.

Judging from visitor surveys, Carlisle Events probably accounts for about 10 percent of the county’s tourism traffic.

A survey completed last year by North Star Opinion Research, commissioned by CAEDC, found that 8 percent of respondents had first heard of the area through a car show. Around 9 percent of visitors said attending a car show was their primary purpose, and 12 percent said they would attend a car event if it was not their main reason for coming.

But much of the North Star data is somewhat harder to pin down, with indications that the county’s biggest draw is the somewhat amorphous idea of ambiance — visitors who come through the area simply to enjoy its quaintness, history, or general je ne sais quoi.

The North Star survey relied on 556 responses from persons whose email addresses were pulled from CAEDC’s Visitors Bureau mailing list. Of these, 170 respondents were people who live or work in Cumberland County, with the rest being outside visitors or those who plan to vacation here.

The most frequently-selected descriptor for the Cumberland region was “scenic.” Ease of access by car was also high on the list, with nearly all of the respondents coming from somewhere in Pennsylvania or an adjacent state, such as Maryland or New Jersey.

Just passing through

But the most common main reason for visiting the area was “just passing through,” at 16 percent. Visiting family or friends accounted for 14 percent, and general sightseeing another 12 percent.

The population also skews older, in a fairly narrow band — 34 percent of the survey respondents were ages 55 to 64, and only 10 percent were under 35. About half traveled as a couple, and 80 percent did not travel with children.

Roughly speaking, the picture being painted is of a middle-aged or slightly older couple who may be drawn to the area by a family event, car show, or college graduation, but spends an additional one or two nights taking in the area’s rustic ambiance.

“You either have to be in an area that has events, or you have to push the destination yourself,” said Dee Fegan, owner of 30 Timber Road Bed & Breakfast in Mechanicsburg. “B&Bs are always location, location, location.”

Fegan also heads the Cumberland Valley Bed & Breakfast Association, a trade group with a growing membership. Fegan attributes the success of local B&Bs to having a dual advantage — many of them serve as boutique accommodations for businesses travelers, while also offering getaways for those who have come to know the region.

“We have some that are in a prime location to get the business travel, and some that lean more toward a romantic destination,” Fegan said. “But if they are pushing for it, and want to be a full-time B&B … they will be able to get very close to or better than what the hotels are doing.”

“We have a lot of people who just want to get away. This area is fantastic with the events, the history, the Appalachian Trail, the countryside, all of that.”

When asked what they did during their stay, the top responses for visitors in the North Star survey were eating, shopping, and visiting with family or friends. Behind these, outdoor recreation and visiting historic sights ranked highly, with 20 percent of respondents saying they had done each.

“The town of Boiling Springs, and a lot of the communities here, are such a throwback to the past, and I think people are starting to appreciate that again,” said Chris Frangiosa of TCO Fly Shop, which just opened its fourth location.

With multiple world-renowned fly fishing locations nearby, as well as the Appalachian Trail and the Pine Grove Furnace camping area, Boiling Springs is a perfect location for an outdoor retailer.

“To have such a qualified customer walking by year after year, guaranteed, that’s really rare,” Frangiosa said. “If I could duplicate this location over and over again, we’d be set.”

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