NY Times: For the Hotel Industry, Recovery is a Long Way Off

Monday, November 23, 2009

For the Hotel Industry, Recovery is a Long Way Off

http://www.nytimes.com/2009/11/24/business/24road.html


Great article by Joe Sharkey from the NY Times, first paragraph really says it all and I can't help but agree 100%


In these uncertain economic times, I am wary when I hear someone proclaiming, “We have finally bottomed out.” After all, who knows how long we may stay on the bottom?

So that’s why I urge caution in evaluating small recent indicators that might mean better times ahead for the hotel industry.

On Monday, for example, the hotel investment services firm Jones Lang LaSalle Hotels released a survey showing that investors saw some signs of improvement for hotels, but not for at least a year.

For business travelers that means hotels will remain a buyers’ market, especially as they continue to discount rates. But because hotels have cut spending on staff, maintenance and renovations, it means the general quality of the hotel experience could continue to decline.

Every couple of months, I like to take the temperature of the hotel business because, like most business travelers, I generally like the way domestic hotels steadily improved services for about a decade. On Monday, I spoke with two experts at New York University Tisch Center for Hospitality, Tourism and Sports Management. Both say the hotel industry needs to think differently about how it does business, even after it gets back to a firmer financial footing.

Hotel operators, who recall past cycles when booming growth came after business downturns “have to get over the idea that things are going to get back to the way they were,” said Lalia Rach, the dean of the hospitality program at the Tisch Center.

She sees a number of hurdles once hotels start to recover, including improving person-to-person service, which has slipped as many hotels laid off staff and added extra work for those still on the job.

“They’ve cut so much labor that there is perhaps the question, ‘Do they really still have a customer service attitude?’ ” she said. “Do people still understand they’re in the hospitality industry?”

While traveling last week, Ms. Rach said she made it a point to observe airline workers and found them dispirited, reflecting the deteriorating condition of the airline business. “Going through O’Hare, I was struck by the realization that the airlines just didn’t care, and the workers share that attitude. There used to be a smidgen of concern for customer service, but not any more. And that’s a concern I have for the hotel industry.”

As demand improves, hotels will try to raise room rates to previous levels, she said, “but then all of these things will come back to haunt them.

“Will customers be asking, ‘You really want me to pay this kind of money — for that kind of service?’ The American consumer now really understands the quality-value price equation, and I’m not sure that has sunk into the hotel industry. That is the new normal.”

Bjorn Hanson, a clinical associate professor at the Tisch Center, said that average domestic hotel occupancy this year would be about 55 percent.

Average national occupancy has dipped below 60 percent only twice before since the 1920s, he said, during the Great Depression, and in the aftermath of the 2001 terrorist attacks.

He said that “occupancy in 2010 will almost certainly be up a little bit,” mostly because of continuing heavy discounting. Average room rates, he said, are likely to be slightly lower next year.

It has been a year since the hotel industry felt the sudden blows from the recession after a period of record prosperity.

This year, Mr. Hanson said, revenue per available room, the crucial measure of hotel performance, will be off 16 to 17 percent for all hotels — a far steeper drop than any analysts were predicting earlier this year.

For luxury hotels, the numbers are far worse.

Mostly because of the economy, but partly because of public resentment of conspicuous corporate spending, five-star hotels took the biggest hit as company travel managers cracked down on spending and luxury meetings and conference planners either canceled events or went more downscale.

For luxury hotels, per-room revenue will probably show a drop of 25 percent this year, he said.

No one expects that to change drastically anytime soon, either. Until a year ago, “there was a sense at some executive levels that there was no limit to opulence” on the road, Ms. Rach said.

The limits have arrived.

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