From Bust to Boom

These days, panic-stricken hoteliers are constantly fretting over room rate. It’s the biggest question these days in hospitality, as rate integrity has eroded along with occupancy. No longer are hotels in the driver’s seat when determining the cost for a hotel room; it seems as if the consumer is in charge now. 

The problem, of course, is multi-faceted. The recession has caused many companies to pull back on corporate spending. They’re also afraid to hold meetings for fear of media reprisal. It’s caused knee-jerk reaction among hoteliers to fight it out market to market. The end result has been an attempt to cut rate to steal market share, but it’s only caused more headaches for hotels, many of which are overleveraged with debt and need to fill rooms at any cost to make debt service payments.

What a mess! Fortunately, all indications point to the worst being over. Either way, however, hoteliers are unwilling to drop their defensive postures until there are stronger signs their competition won’t undercut them with lower rates. 

So the big question on everyone’s minds last week at The Lodging Conference at the plush Arizona Biltmore Resort and Spa in Phoenix, AZ, was, “When will room rate return?”

According to Steve Swope, Chairman and CEO of Rubicon, the key to understanding where room rates are headed is through examining the pace at which rooms are booked in any given four-week time period. And, for the first time in a year and a half, it looks as if future bookings are on the upswing.

“We are starting to see positive pace for the first time in a long time,” said Swope. “Any glimmer of excitement is the pace number has finally swung up. And that is good news. However, it is going to be a long slog to get rates back up. But the first sign is to see rates stop falling and that is where we are today.”

Swope added that there has been an acceleration of demand during the last four weeks for the future 12 months. In fact, it’s up pace 3.3 percent year over year, and 18 of 25 top markets are now in positive territory.

Andrew Stegen, General Manager of the host hotel, the Arizona Biltmore, said he sees prospects are up 300 percent from this time last year. It’s a sure sign things are on the mend.

Larry Shupnick, Senior Vice President Development and Acquisitions with Interstate Hotels and Resorts, agrees that it looks like the profit needle will soon start moving in the right direction. “I think that the market will turn a little bit in 2010. Probably by the second or third quarter we will see the market pick back up in RevPAR,” said Shupnick.

R. Mark Woodworth, President of PKF Hospitality Research, agreed that it seems as if the market has bottomed out. “I think things are going to start looking better as we move forward,” he said, noting that he thinks RevPAR will turn positive later in 2010. “From the bottom line there will be another year of losses in 2010, but we see some very attractive year over year increases in 2011.”

Woodworth said some of the problem is going to be a surge of new openings of projects approved at the end of the last cycle, which will continue to give the industry some grief for the next quarter or two.

According to Swope, the booking decline was first seen around February 2008 for forward bookings. At that time pace started slipping as much as 20 – 30 percent. And it wasn’t until this past spring that the booking pace stopped freefalling and began to flatten out. “We kind of hit bottom in mid-May. It’s undulated a little bit since then,” said Swope.

When this year is complete Swope said he expects transient demand to be down about five percent, while group demand should be down about 12 percent.

One problem that will continue to haunt hoteliers is companies renewing room contracts for the coming year and buying less room nights for a lower price per night. In addition, Swope said the customer is many times abandoning the negotiated rate for a conference and going with an online travel agency to get a lower rate.

By: Glenn Haussman