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Prism Hotels & Resorts is a Dallas, Texas-based full-service hotel management company that manages premier hotels and luxury resort properties across the US for leading brands, as well as independent and boutique hoteliers.

GlobeSt.com recently spoke with Prism President & CEO, Steve Van about the state of the industry—and about what he expects the hospitality landscape to look like in the months and years ahead. In this Q&A, Van pops the hood and takes a closer look behind some of the national numbers, discusses trends in individual markets, and suggests some reasons for both optimism and caution for hotel owners and operators.

What follows are some of the highlights from that conversation:

There has been a lot of talk about the surprisingly durable period of growth and strong performance—not just in the hotel industry, but with respect to larger national economic numbers. That's obviously welcome news for hoteliers, yes?

SV: You won't find any complaints, no. I will say, however, that the headline numbers are about the past- and the longest growth period in history. Things get more complicated and concerning when you start to take a closer look at some of the trends—and the individual market numbers across the country.

Tell me about some of those complications.

SV: The January 27th STR report on U.S. hotel industry performance has some really fascinating numbers. On the one hand, December RevPAR nationally was the strongest it has been all year, at 2.6%. On the flip side, transient annual ADR growth is now down below 1%, and, more importantly to my mind, expenses are going up. The rising cost of labor isn't helping things. Here in Dallas in a year that experienced a 0.3% RevPAR decline – hospitality workers' pay increased 7.2%. With expenses growing around 3-5% on average nationwide, operating income and profit are trending in the wrong direction. It's not a catastrophic drop, but it's not ideal. And keep in mind, at the same time, we're adding more than 4% to the room supply.

So profits and bottom lines are the real story here?

SV: Absolutely. Increased demand and increased ADR make for great headlines, but I truly do believe we need to talk more often and more openly about profitability. The single most important statistic in the hotel business is net operating income, and the picture there is less rosy than the public narrative would have us believe.

You mentioned individual market performance earlier. Can you elaborate?

SV: Fundamentally, the hotel business is a market-by-market business. And we are seeing a lot of variability between markets—much more of a mixed bag than the aggregate top-line numbers might lead us to believe. The difference between the top markets and the bottom ones right now is alarming. While Phoenix and Denver are doing well, the STR report I mentioned earlier has New York City, Seattle and Houston all with a RevPAR decrease of more than 3%. The Los Angeles LAX hotel sector is also looking pretty grim right now.

Do you have any thoughts about what that variability might mean going forward?

SV: Yes. Some hotel markets will see increasing defaults and foreclosures much sooner than others. These weaknesses coupled with the potential effects of the coronavirus, could produce huge problems for local hotel owners. The virus is headed our way. It is not a minor matter and is already dramatically affecting markets like LA. And with the gap between transient and group business having grown from 16% in 2005 to around 34% today, we are liable to feel the impact of a downturn more quickly than in the past. Oversupply also makes us a little more vulnerable in that respect. We are seeing some eye-opening numbers in places like Nashville (a 13% increase in supply) and New York (a 10% increase).