Hotel executives this week agreed that the "panic" throughout the industry has mellowed, and most believe a return to more prosperous times is closer than they previously assumed. Midtier and budget brands, which have enjoyed a degree of insulation during the ongoing recession, may be particularly well-positioned, though most executives from companies with luxury brands also expressed optimism here at New York University's International Hospitality Industry Investment Conference.
"We are actually hopeful and are starting to believe that there will be some signs of the year improving," said Choice Hotels International president and CEO Stephen Joyce. "The unemployment [rate] is still growing, but at a much lower rate than we have seen previously. People will begin to believe that this, too, will turn, and, as a result, we will begin to see a much stronger third and fourth quarter [and] into next year, hopefully getting out of this negative trend."
Hilton Hotels Corp. president and CEO Christopher Nassetta and Starwood Hotels & Resorts president and CEO Frits van Paasschen agreed, saying they expect to see positive movement. "The worst is behind us," said Nassetta. "We are on our way, and we see some great telltale signs. [We] will start to see some significant improvement over time, but it will be a slow, arduous process."
Said van Paasschen, "There is a major pent-up demand effect between 'staycations' and canceled business meetings; there will be a rebound."
Gary Mendell, chairman and CEO of lodging investment firm HEI Hotels & Resorts, echoed that sentiment, saying that those companies canceling annual meetings this year will schedule those meetings for next year. "Even if there is a down market, you can't not have people getting together two years in a row," he said.
Not all hotel leaders speaking at the NYU event were optimistic. Though the U.S. market "may have hit bottom," Accor chairman and CEO Gilles Pelisson said his company is "a little bit more conservative looking at the U.S. We don't see a very high level of recovery." Pelisson also noted "very bad" economic conditions in Europe, including France and Germany, and said, "For the rest of the year, we all [will] have to manage through the recession as we see more layoffs, closings, etc." He spoke more optimistically about China and Brazil, saying those economies "have some muscle and can deliver the strongest growth."
Many hotel companies already had made tough decisions to survive the faltering economy, including layoffs and reductions in services and amenities. Though some now have a more positive outlook than during the previous several months, cost-cutting efforts remain in place and will continue even as the economy recovers, according to executives.
"We have been able to use this downturn as a catalyst to streamline our operations and to really remove overlaps by cutting back on resources and making ourselves more responsive," said van Paasschen. For example, Starwood has cut more than 30 percent of its sales team.
"We made tremendous strides and took a lot of unnecessary cost out of the system," added HEI's Mendell. "For our industry, it usually comes down to payroll and we are figuring out ways to do things more efficiently today."
Meanwhile, Joyce said that midtier and budget brands under the Choice umbrella are performing better than expected. He anticipated a "lingering effect, where people are going to have to justify--particularly on the business end--where they have to be staying. As a result, we are seeing a trade down into our markets, where folks are moving a segment down based on their business requirements or their personal travel desire of wanting to stay within their budgets."
Choice is increasing its sales force by scooping up the "incredible talent" that typically is unavailable, Joyce added, and welcoming newly converted properties into its system.
"We are doing really well in this environment because our brands have a value orientation to them," Joyce said, noting Choice's "strong" balance sheet. "There has been a big spike in conversions, and my company has been able to benefit from that significantly."
With its own portfolio of midtier and budget brands, Wyndham Hotels Group also has reported an increase in conversions. "Obviously, when times are good, there are many hotels that are just satisfied with what they have because they are doing OK," said CEO Eric Danziger. "When times are bad, they look for better. They look for hope--a St. Bernard to rescue them."
In the luxury segment, hoteliers are feeling the pinch as the very word luxury is viewed as "dirty," the CEOs agreed. But they also expected demand to eventually pick up again.
"We are a firm believer that over time luxury goods and products and services will be in demand again," said Hilton's Nassetta. "In fact, the trends in the next decade or two are quite good for people wanting luxury, customized products and services." Hilton is expanding its luxury presence worldwide by developing several new Waldorf-Astoria properties by year-end, he continued.
"Luxury will absolutely bounce back," Starwood's Van Paasschen agreed.