The outlook for the US lodging and cruise industry remains positive, Moody’s Investors Service says in a new report. The year is off to a strong start, with occupancy rates at historical highs and oil prices falling, with earnings set to increase as a result.

“Lodging companies enjoyed a 3.7% rise in occupancy rates in the first two months of this year, compared with industry expectations for growth of less than 2%,” says Senior Vice President, Margaret Taylor. “Occupancy rates continued to surpass historical levels in March, though we expect the rate of growth to slow over the coming 12 months.”

Meanwhile, cruise companies stand to benefit from low oil prices. Fuel costs account for 10%-13% of total revenues for the big three cruise companies, Carnival Cruise Lines, Royal Caribbean Cruises and NCL Corp. All three hedge these costs, limiting the amount of earnings benefit from falling oil prices this year, but all will receive an earnings boost as hedges fall off.

Lodging and cruise companies will however come under pressure from the strengthening US dollar, since most have sizable businesses outside the US, Taylor says in the new report, “Earnings Growth Will Be Strong in 2015, Despite FX Headwind.” While on a constant-currency basis revenue per available room (RevPAR) is expected to grow between 6% and 7% this year, once these earnings are translated into US dollars, growth is likely to be much lower.

The stronger US dollar won’t affect EBITDA as much as RevPAR, as many of the costs are also in local currency. Indeed, following a strong earnings season, Moody’s has revised its expectations for rated companies’ 2015 adjusted EBITDA growth upward, to 8%-9% from 6%-8%. Last year adjusted EBITDA rose 11.3%.

“Although foreign exchange will be a modest drag on earnings in the year ahead, for lodging companies this will be more than offset by continued growth in occupancy and for cruise companies by low fuel prices due to falling oil prices,” Taylor says.

Growth in occupancy will in turn drive an improvement in average daily room rates. Moody’s has also revised its expectation for room rates upward, to 5%-6% from 4.0%-4.5%, given the stronger start to the year.

The material has been provided by InstaForex Company –