Moody’s, a major credit rating and financial services firm, has downgraded the outlook for the U.S. lodging and cruise industry from “positive” to “stable” due to slower earnings growth. Moody’s said that expectations for combined lodging and cruise earnings growth over the next 12 to 18 months have slowed from 6 to 7 percent to 4 to 5 percent due to weaker pricing in Continental Europe, the U.S. ban on cruises to Cuba and the implementation of higher fuel cost regulations.
In terms of lodging, Moody’s said that weakening occupancy growth in 2020 will throttle the sector’s fundamentals, despite stable supply growth. In the first eight months of 2019, demand growth slowed to 2.1 percent, down from 2.9 percent the prior year, according to the report. The resulting decline in average daily rate (ADR) and revenue per available room (RevPAR) means lodging companies are relying more heavily on new unit growth.
“RevPAR growth of 1.2 percent in the first eight months of 2019 represents muted growth compared to the 3.5 percent we saw over the same period in 2018, causing occupancy and ADR growth to slow over the same period,” said Moody’s Assistant Vice President Peter Trombetta in a written statement. “As a result, we are seeing an increasing focus on new unit growth in the form of new hotel earnings and conversions, with Hyatt, Marriott International and Hilton each forecasting new room growth of more than 5 percent this year.”
The dip in cruise earnings growth comes as weaker pricing in continental Europe and the ban on cruises to Cuba bear down on the sector, Moody’s said. Rising fuel prices are also expected to weigh as cruise companies work to comply with the International Maritime Organization’s (IMO) regulation on sulfur emissions at sea, starting in 2020.