“It’s like déjà vu all over again.” As hoteliers confront the harsh
economic realities of 2008-09, the scenario seems eerily similar to
the dark days following 9/11. Except this time, they are more
knowledgeable about how to survive a downturn. While wholesale rate reductions are out, judiciously marketed discounts and
promotions as well as aggressive direct sales tactics are in.
Such approaches are needed. Looking at the immediate horizon, there is little doubt that RevPAR will head south in 2009.
A report from FBR Capital Markets predicts that Q4 RevPAR
will likely come in lower than
By Maria Wood the negative 3% to negative
5% guidance provided by hotel companies. Conversely, statistics compiled by PKF Hospitality Research and Smith Travel Research forecast a slim 0.8% rise
in RevPAR this year, before dropping 3.2% next year. An uptick
of 3.1% is anticipated for 2010. All those figures pale in comparison to the 7.8% and 5.7% jumps RevPAR took in the giddy
years of 2006 and 2007, respectively. (See sidebar, page 56.)
“We are certainly budgeting for next year with flat to slightly
down RevPAR in mind because we would be naïve not to,”
declares Rebecca Wyatt, Memphis-based senior vice president
of brand management for Homewood Suites by Hilton.
Although they face a frosty forecast for the upcoming year,
hoteliers say they are prepared to deal with it. Chief among the
lessons learned from last time around is the importance of
maintaining ADRs, at least at the retail level. Across-the-board,
broadly marketed price slashing fails to boost occupancy or
market share in an economic slump. If anything, it only serves
to shrink the bottom line.
“We know from past cycles that dropping room rates is
a stupid thing to do because it will not necessarily increase
revenues,” says Thomas J. Corcoran Jr., chairman of FelCor
Lodging Trust in Irving, TX and incoming chairman of IAHI,
an organization of owners and operators of InterContinental
Hotels Group-flagged properties.
“The questions most hotels are asking today is, how do I get
my fair share of the market and drive revenues? That means you
take a look at your business mix and see where you need to
tweak it, such as maybe adding some additional contract business,” he continues. “At the same time, you look at the expense
side to the extent that you can cut costs that won’t impact the
overall customer stay.”
Another reason hoteliers are resistant to rate cuts this time
around is that once reduced, ADRs are difficult to drive back
up when the economy eventually turns positive. “We saw after 9/11 that when you slash prices to drive occupancy, it’s so
hard to get rates back up. The better part of valor is to maintain rates,” says Donald W. Wise, global hospitality industry
managing partner for Johnson Capital in Napa, CA.
Or at least maintain the advertised rate. Admittedly, keeping
ADRs up in a rapidly deteriorating economic climate is difficult.
A wiser choice may be to lure new business segments to a hotel.
“Hoteliers will always say they are not going to cut rates,” observes Michael W. Murray, COO of Hersha Hospitality Management in Philadelphia. “But in a free market, when revenue isn’t
there, human nature and fear come into play; people start to
do things they may not want to admit to. But we try to shift the
customer mix versus changing retail price points first. If a year
ago we had a 100-room hotel that didn’t need any long-term
base business, we may go find that one account that can give us
20 rooms every single day of the year.”
Changing the patron blend at a particular property entails
bringing in customers who may have previously been dissuaded
from checking in due to pricing. “Business people that stayed in
full-service or luxury hotels may need to trade down because while
they will still travel, they have smaller budgets,” Murray says.
“Or we can go to accounts we have not had in our hotel
because they were more price sensitive,” he explains. “We can
go underground, if you will, and bring that client in. While
that may be a lower price point than we would have taken a
year or two ago, it’s not one that people are going to find on a
website. People aren’t going to see that this hotel just slashed
its rates by $30.”