Hotels Cut Capital Spending

The U.S. hotel industry is scaling back capital expenditures to their lowest levels in years, although industry analysts said travelers are unlikely to see any drastic amenity cuts as a result.

Bjorn Hanson, an associate professor at New York University's Tisch Center, this month released a report forecasting a nearly 30 percent drop in capital improvements on U.S. hotels, down to $4 billion from a record $5.5 billion in 2008. This is the first year since 2003 that the industry will spend less on capital expenditures than in the prior year, he said.

Hotels could see profits drop as much as 25 percent to 30 percent, and Hanson said they will look to trim expenses in terms of amenities.

Hanson in a subsequent report said that the amount of fees and surcharges that U.S. hotels collect in 2009 would drop to $1.65 billion, from $1.75 billion collected in 2008. He attributed the drop to decreased demand, particularly in higher tiers with the most fees and surcharges, and reticence by hotels to introduce or increase those fees.

There already have been reports of individual hotels cutting back on a few amenities—a little less glitzy soap in the bathrooms or switching from flat-priced breakfast buffets to a la carte meals—and that could continue, Hanson said. Not only do hotels want to save money, guests also might want to see some amenities disappear, he said. "There is a heightened consumer sensitivity to items of waste," Hanson said. "Travelers will want to know why hotels are putting these expensive things in the room and, in effect, charging for it."

Jeff Higley, director of communications at Smith Travel Research and editorial director of digital media for its HotelNewsNow.com, said hotels likely will retain amenities and services.

"Hotel operators long have touted that their properties are all about experiences, so they will be careful to not allow the amenities and services that define the experience to be eliminated," he said. "Yes, they will have to shuffle the deck at times, but most hoteliers are committed to the guest experience and will eliminate amenities and services only as a last resort. They'll look for other places to trim before taking away the things that affect a guest's experience."

Best Western International said it always has done a thorough return-on-investment analysis for amenities and does not expect to cut back on them this year. Ron Pohl, the company's vice president of brand management and member services, said in 2009 it is investing in training to show its members how they can enhance breakfast amenities and improve green standards.

"Good midscale hotels provide the basic requirements of a comfortable stay on a complimentary basis. Best Western is not looking to add fees that will erode the value positioning of our brand," Pohl said. "As we have seen with airlines, such a move would negatively impact our customers and nudge them to a competing brand."

Part of the reason for the drop in spending is the completion, following five years of record capital expenditures, of industry-wide initiatives including upgrading beds and flat-screen televisions, wireless Internet connectivity and new breakfast areas, Hanson said, putting hotels in better physical condition than ever.

Kathy Pruett, senior director of consulting at BCD Travel consulting arm Advito, said if a hotel decides to start charging for a previously free amenity, travel buyers already could be shielded by their agreements or might find it easy to negotiate out that extra charge.