Pinnacle Advisory Group


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The Gulf Oil Spill Post Mortem on the Magnitude of the Impacts to the Lodging Industry on Two Coasts by: Gregory T. Bohan

Presented by: Gregory T. Bohan, Managing Director – Pinnacle Advisory Group – South Florida/Caribbean

By virtually any measure, the oil spill resulting from the April 20, 2010 explosion of BP’s Deepwater Horizon oil drilling platform in the Gulf of Mexico must be considered a disaster of epic proportions. Over the 3 months that the oil continued to flow into the once-pristine waters of the Gulf and even since the spill was contained, the damage to the environment, the economy and to the lives of those affected is almost unfathomable.

There have been many reports dealing with the impact of the spill on Florida’s lodging industry. The waters get a bit muddied (pun intended) because, in addition to the spill, Florida – like the rest of the world – was still suffering from the lingering effects of the “Great Recession”. Separating the impact of one from the other is an effort that is inexact at best and perhaps futile. Determining who was hit the hardest is equally difficult. However, we do believe that making performance comparisons between hotel industry performance along the most directly affected area – the Gulf Coast – with the Atlantic coast which was not directly affected presents a reasonable way of viewing impact. BOTH areas were, in all probability, on equal footing with regard to recessionary forces, but the same cannot be said with regard to proximity to the spill and commensurate impact.

The following paragraphs and the tabular data presented are relatively simplistic in nature but tell a compelling story. Despite fears and some evidence to the contrary, the impact on Florida’s east coast lodging industry was far less than that on the Gulf Coast. With the help of data generously provided by Smith Travel Research interpreted along with the insights gained in our interviews with operators, we compare lodging industry operating results for four key Florida destinations – two on the Gulf and two on the Atlantic side of the State:

  • Panama City – where the impact of the spill was, arguably, the most severe – exacerbated by unrelenting coverage in the media
  • Clearwater/St. Petersburg – where direct impact (oil on the beach) was far less of an issue than in the Panama City area but which, nonetheless, was impacted directly since the oil’s arrival appeared to be imminent for a period of months after the explosion
  • Miami Beach – on the Atlantic near Florida’s southern tip – where doomsayers repeatedly warned that the “Loop Current” would deliver the oil “sometime soon” as it was expected to round the tip of Florida and enter the Florida Straits; and
  • Daytona Beach – Several hundred miles north of Miami on the Atlantic coast and, while not completely out of the firing line – still included in the far distant “Loop Current” targets of the oil.

For each of these areas we looked at basic lodging performance measures – Occupancy and Average Daily Rate over a six month period following the explosion. We focus on 3 of those months – May, when the magnitude of the spill was just being realized; July – the month in which the spill was finally contained (July 15) and October, when media coverage had all but ceased and life was supposed to be returning to “normal” in the affected areas.

As shown in the graphs below, occupancy levels in Panama City and Clearwater/St. Petersburg dropped significantly in May 2010, when compared with the average May performance of 13 prior years. The two “Atlantic side” destinations, on the other hand experienced occupancy levels that were higher, in both cases than the average May occupancy of the prior 13 years. As shown in the charts, this differential continued into July and again into October. In all three periods, occupancy for the Gulf destinations lagged the 13 year average while occupancy for the Atlantic destinations was higher than the 13 year average.

In terms of average daily rate, the impact was somewhat more pronounced. Blue bars in the charts below examine the CHANGE in ADR compared with the same month in the prior year. Red bars represent the change in ADR in the month of May 2010 compared with May, 2009:

As shown, ADR dropped precipitously in both Panama City and Clearwater/St. Petersburg in the month of May 2010 which began just 11 days after the oil started flowing. While rates in Miami Beach and Daytona Beach did not increase as rapidly as they had historically done, they nonetheless exhibited an increase with Miami Beach being up approximately 4% and Daytona Beach being up by more than 2%.

In July, the impact on rates in the Panama City area was even more pronounced with ADRs dropping 7.9% compared with the prior May’s level. Clearwater/St. Petersburg’s rates dropped at a much more modest rate, as it become increasingly apparent that the oil might not reach the shores in that area and sales executives became more emboldened in terms of maintaining rate integrity. Rates at the two Atlantic coast destinations increased – in Miami by almost the same rate as the historical average from July to July and in Daytona by a more modest amount.

By October, a recovery in ADR was clearly exhibited by the Panama City figures, as rates increased approximately 6% from the prior October – this being a much faster pace than the average historical increase pace of the prior 13 years. The change in rate in Clearwater/St Pete for October, 2010, vs. October 2009 was in positive territory, but lagged the prior 13 years pace. Miami Beach’s rate increase from October 2009 to October 2010 was on par with the average such increase for the prior 13 years. Daytona rates were barely above the October 2009 levels in October 2010, however; as shown in the chart, ADR had increased at an average of almost 6 percent year over year in the typical October from 1997 to 2009.

In closing, it appears, based on this data, the impact of the Gulf oil spill was more dramatic and more immediate for the Gulf Coast destinations as one would expect. According to the information shared with us, expectations are that the effects may be lingering for some time. While there was wide belief that the Atlantic destinations were almost equally affected, the data suggests otherwise. No matter how the data is interpreted, the lingering impact of the explosion of the Deepwater Horizon will remain front-and-center with Florida hoteliers for some time to come.