NYU Hospitality Conference: Upscale CEOs Decry Rate Reductions

Corporate hotel rates recently negotiated downward are unlikely to increase anytime soon, said several multibrand hotel company CEOs this week at New York University's International Hospitality Industry Investment Conference.

Noble Investment Group senior managing principal and CEO Mitesh Shah said on Monday the length of the current economic downturn, now in its 18th month and already longer than most recent lodging industry downturns, meant it would take time for hotel companies to bring corporate rates back to the levels reached in 2007.

Noble, which operates upscale hotels under Marriott, Starwood, Hilton, Hyatt and InterContinental Hotel Group brands, has seen corporate buyers push to lower rates, and they will have the ability to dictate pricing for a while, he said.

"They understand that if they are traveling, they're one of the very few traveling, so they've gotten very aggressive," Shah said. "That's not going to change until demand starts increasing."

The push has been not only for rates, but also for such amenity add-ons as breakfast and transportation.

The one factor countering that is the expected slowdown in supply once hotels under construction are completed, the CEOs said. Supply growth is less than in other downturns, Shah said, and Starwood Hotels & Resorts Worldwide president and CEO Frits van Paasschen added that the peaks reached in 2007 were not that high in real-dollar terms compared with previous cycles.

"We'll go through a long period where supply is going to be constrained," van Paasschen said. "When the economy comes back, there will be a pretty good bounce back in rate."

Rate drops have not been consistent among all hotel tiers, said Choice Hotels International president and CEO Stephen Joyce. His company, which operates largely in the midprice tier, has not lost much ground in rates, he said.

"The higher you go in the segments, the worst the business has become," Joyce said. "Our folks have tended to hold their rate, and we've made a concerted effort to talk to them, telling them that lowering rates does not drive demand; it drives lower revenues."

Joyce also said his company has coupled a push in loyalty program sign-up as the brand sees an influx of travelers, including corporate travelers, who are now using Choice properties as a result of cost-saving initiatives. "There's enormous pressure both from a social standpoint and for companies pushing to look for things that are more value-oriented," he said.

While the CEOs generally agreed that transient and group business travel demand ultimately would pick up again, they said they expected some of the savings measures enacted by corporate travel departments to remain. HEI Hotels & Resorts chairman and CEO Gary Mendell, for example, said he has seen an increase in hotel program compliance by corporate travelers.

"The downturn is teaching the companies and giving them the opportunity to dig deeper and use technology to control travel like they haven't done in the past," Mendell said. "I'm not sure that will go away."