Widespread corporate travel cutbacks and trading down to less-expensive properties have battered upscale and luxury hotels around the world, with reports indicating the sting will continue to smart for the foreseeable future. The full extent of first-quarter damage will be revealed in the coming weeks as publicly traded major hotel companies report their financial results.
Meanwhile, Hogg Robinson Group found that overall hotel rates paid by business travelers have fallen in key cities in all regions. Rates paid by its corporate clients this year plummeted by double-digit percentages in several top business centers.
"We are in a year of change," said HRG director of global hotel relations Margaret Bowler. "The global hotel industry continues to find itself in uncertain times, with average rates falling and occupancy declining."
Rates are lower across all segments, but, according to research firms, luxury hotel rates are falling off precipitously due to lagging business travel. PKF Hospitality Research told The Transnationalthat it expects an 8.4 percent annual decline in luxury average daily rates this year, to $264.38, and a 10 percent dip in occupancy to 61.1 percent.
"The luxury segment has been hit hard this time because there is this social stigma of indulgence surrounding luxury hotels," said PKF director of research information services Robert Mandelbaum.
Bjorn Hanson, associate professor at the NYU Tisch Center for Hospitality, Tourism and Sports management, agreed, saying that stays at luxury properties are deemed by the public as "inappropriate." He attributed the luxury sector's decline to supply growth coinciding with demand retraction, the "AIG effect" and travel reductions in the finance, insurance and real estate industries. Hanson also noted that since the U.S. dollar has strengthened, many foreign visitors to the United States no longer can afford to pay for high-price properties. Currency exchange "is now a disadvantage," Hanson said.
According to Smith Travel Research vice president Jan Freitag, weekday group bookings in the luxury segment during January and February fell 19.5 percent year over year, and transient bookings dropped 8.8 percent. For the same timeframe, luxury average daily transient rates fell 11.7 percent, and group rates retreated 2.2 percent.
According to STR president Mark Lomanno, "The first two months of 2009 were tough pills to swallow for the entire industry, but specifically the luxury segment."
Overall, "the hotel industry was, is and will be profitable," Freitag said this month at the Hunter Hotel Investment Conference in Atlanta. "We've always made money. Compare it to airlines, which have cumulative lifetime losses, and we're not an industry in need of bailout. We're just going to make less money for a while."
However, some iconic properties have affirmed their susceptibility to the downturn. The owner of The Greenbrier resort in White Sulphur Springs, W.Va., this month filed for bankruptcy protection and agreed to sell the property to a subsidiary of Marriott International. Elsewhere, "the St. Regis Hotel in Detroit, the Palace Station Hotel in Las Vegas, the Tropicana in Atlantic City and the Ilikai in Honolulu are already in or exploring filing Chapter 11 bankruptcy protection," according to PeterGreenberg.com.
Though previous reports suggested the U.S. hospitality industry would bounce back in 2010, PKF this month said the decline would be "deeper and last longer" than previously predicted. The firm's updated overall industry projections for 2009 include a 6.4 percent decrease in average daily rate--which would be "the largest annual decline observed" since the firm began tracking such data in 1932--a 7.8 percent decline in occupancy, a 13.7 percent drop in revenue per available room and 30 percent less profit. "A quarter-over-quarter gain in sales is not anticipated until the first quarter of 2011," PKF predicted.
"The outlook for the U.S. lodging industry is grim," according to PKF president Mark Woodworth. "However, analyzing the data for each of the 50 individual markets, it is clear that lodging behavior can vary considerably from market to market." For example, 2009 RevPar growth is expected in several markets, including Atlanta, Chicago, Dallas, Detroit, Houston, Minneapolis, Minn., and Raleigh, N.C.
In light of the U.S. government and media scrutiny of corporate bailout beneficiaries, some of lodging's financial leaders attempted to assure analysts that the industry would recover.
Starwood Hotels & Resorts Worldwide CFO Vasant Prabhu during a March 10 Deutsche Bank conference described the recent headline-making congressional attention as "purely grandstanding." At a Raymond James conference the next day, Prabhu said, "All that will die down, because business has got to be done and it's got to be done in a certain way."
At a Merrill Lynch event on March 11, Marriott senior vice president of investor relations Laura Paugh said: "Corporate travelers are traveling in fewer numbers, and, for corporate transient business, it doesn't matter what you price the rooms--people are not traveling. You can't cut the rates, because they are sitting in their office and they don't have a budget for travel."
On a global level, the trend toward lower business travel hotel rates continues, according to HRG. The travel management company's analysis of its corporate clients' bookings and general market pricing found significantly lower rates during January and February of this year versus last year. The largest local-currency decreases occurred in Mumbai (26 percent) and Dubai (24 percent), with large drops also observed in Amsterdam, Madrid, Milan, New York and Tokyo. Abu Dhabi and Moscow bucked the trend, with average rates up 19 percent and 3 percent, respectively.