Lodging Industry Eludes Signs Of Economic Slowdown
<B>Lodging Industry Eludes Signs Of Economic Slowdown</B>
By Bruce Serlen
Despite the gathering clouds over this year's economy, the U.S. hotel industry ended 2000 strongly and results for the first weeks of 2001 were surprisingly positive. Room revenues in 2000, for example, surged 8.7 percent over 1999, to more than $79 billion. What's more, with recent rate negotiations for 2001 concluded, industry consultants predicted average increases to amount to 4 percent to 6 percent. Overall, the forecast for hoteliers is hardly one of doom and gloom. Corporate travel managers, however, will have to weather yet another season in a seller's market.
Mark Lomanno, president of Smith Travel Research in Hendersonville, Tenn., was "cautiously optimistic" about the industry's operating performance in 2001. "Room supply growth is on a downward trend, while demand growth seems to be holding fairly steady," he said. "Barring a major economic slowdown, we anticipate flat to slightly higher industry occupancy, with room rate growth remaining comfortably above inflation for full-year 2001."
In 2000, U.S. hotel occupancy was 63.5 percent, which represents an increase of 0.6 percent over 1999--the industry's first full-year gain since 1995. However, other indicators, such as average room rate and revenue per available room, showed more significant advances. "Average room rate grew 4.9 percent in 2000, to $85.24, while RevPAR gained 5.5 percent, to $54.14," said Lomanno.
Room supply growth, meanwhile, slowed to 3.1 percent in 2000, a 24 percent decrease from the 1999 supply gain. "Industry demand, by contrast, grew 3.7 percent, up significantly from the 3 percent growth in 1999," Lomanno said. The improved relationship between supply and demand was what helped push room revenue ahead to the $79 billion figure for the year.
Yet, in the key gateway cities especially, the market in 2000 remained so strong that availability was frequently more of an issue than rate in this year's contract negotiations. For example, occupancy in New York in September reached 89.2 percent. The average room rate was $229, up 14.6 percent over 1999. In San Francisco/San Mateo, meanwhile, occupancy for September 2000 was 87.6 percent, with an average room rate of $159, up 15 percent over the prior year. Outside the United States, cities with the tightest room crunch on the all-important Tuesday and Wednesday nights were London, Paris and Amsterdam.
As a result of such tight availability, many travel managers were sure to negotiate last room availability with their "greatest need" hotels for 2001. Similarly, many buyers scrambled to bring additional hotels into their programs in these key cities as another way of ensuring they'd have sufficient coverage.
"With our large clients this year, we saw hotel programs including more hotels in more cities, thereby becoming truly global," said Julie Hylton, director of hotel management for American Express Consulting. "Clients have gotten better at tracking their travel patterns, so they're better able to anticipate their needs."
For companies with small or medium-size hotel programs that don't qualify for national account status, the room crunch can be the most severe. "Getting the number of rooms you need, even in your own city where you have relationships in place, can be a challenge," said Kevin Maguire, corporate travel manager at Tokyo Electron America in Austin, Texas. Partially in response, Maguire joined forces with five other companies in the Corporate Travel Consortium to increase their negotiating leverage with the multi-brand hotel companies.
However preliminary, feedback for 2001 has been encouraging. To get a sense of just how the corporate market was faring in these first weeks of the new year, Paine Webber lodging industry analyst Keith Mills polled 11 U.S. markets. "The consensus feedback is that the corporate travel business remains positive and is not moderating to the extent that most might think, given the dramatic slowdown in the U.S. economy," Mills said. In particular, markets where early 2001 RevPAR growth is exceeding expectations include San Francisco/San Mateo, Dallas and Orlando.
With corporate travel a crucial component of their business strategies, hotel chains at different price points throughout the year sought to offer new and enhanced amenities for business travelers--and, in the process, distinguish themselves from the competition. Deluxe hotels continued to define themselves in terms of the high level of personalized service they were prepared to provide their high-end guests--and consistently across all the properties in their system.
"We want our frequent guests to be able to rely on that consistency of experience when they stay at one of our hotels anywhere in the world," said Barbara Talbott, executive vice president of Four Seasons Hotels & Resorts. Four Seasons tied for first place in the deluxe category in the 2001 survey along with its traditional rival, Ritz-Carlton Hotel Co. Travelers at this level expect to be recognized when they check in. "We value our guests and want to know their preferences so we can serve them better," said Mark Ferland, Ritz-Carlton vice president of sales.
By concentrating on this level of service, deluxe brands, intentionally or not, set the tone for the upper upscale and upscale industry sectors and, to a lesser degree, the sectors further down the ladder. "Many business travelers today work under a lot of pressure and any way we can anticipate their needs and provide them with personal service, we will do so," said Ernie Taddei, vice president of sales and marketing for AmeriSuites. AmeriSuites placed first in the midprice chains without food and beverage category.
Should the economy soften appreciably as the year progresses, many industry analysts feel such a sector as extended stay--given its cost fundamentals--would be well-positioned to weather the downturn, and possibly even thrive. "People will still be traveling to conduct business. In fact, there likely will be even more people sent on long-term assignments, which is a core market for us," said Tim Sheldon, senior vice president of extended stay lodging for Marriott International, whose brands in this category include Residence Inn and TownePlace Suites.
The hotel companies that placed well in the 2001 Top U.S. Hotel Chain Survey are a microcosm of the industry's larger success. The annual survey assesses travel buyers' relative satisfaction with hotel chains using a range of specific criteria. A critical criterion was the relation between price and value at the chain's properties. Also of interest to travel managers was the effectiveness of the corporate rate program, timeliness of commission payments, ease of arranging travel, availability of in-room and business amenities and the helpfulness of staff. The survey included hotel chains at every price point in the market. Reflecting the particularly strong growth of the extended stay segment, the survey examined upscale and midprice properties as separate categories for the second year.