Lodging Industry Discusses Its Future

The American Hotel & Lodging Association during the past few days produced interesting dialogue providing some insight into where the lodging industry is heading. Hotels are bracing for a tough 2010 that will see further rate declines; luxury properties will be the first to come back; business travel will remain weak; and hotels will continue to charge ancillary fees for amenities like high-speed Internet, according to comments made at AH&LA's fall conference here in New York.
The Free Internet Debate Continues

During the conference, many sessions were dedicated to developing ideas that would help the hotel industry to understand its clientele and an overwhelming amount of people expressed a desire for free high-speed Internet access.

According to a study conducted by the University of Delaware, where 1,332 American travelers responded via email, in room high-speed Internet access was the most important feature to business travelers, but they were the least satisfied with the current offerings from hotels. Some of the conference's panelists and audience members agreed that this could be because it is not offered for free or included in the rate.

“When you go first class in an airline you get everything included; when you go in economy you don’t, but with the hotels it’s reverse," said Dr. Cihan Cobanoglu, associate professor at the University of Delaware. "If you pay for the Internet, you expect it to work, but oftentimes it doesn’t. Come on."

Fellow panelist Pearl Brewer, Ph.D., professor and executive director of graduate studies, said she anticipates high-speed Internet patterns to follow phone service charges, where at one point hoteliers were charging exorbitant prices for phones usage until they were no longer able to once customers began to carry cell phones.

"I am reminded of the days when hotels were charging a great deal for phone service and hotels were talking about blocking cell phone service because business travelers were the first to bring cell phones and they weren’t paying for it, their companies were,” said Brewer. "With high-speed Internet, there are people that are now in the business to provide cheap Internet to you full time and people are going to sell that.”

According to one audience member, "The philosophy is that most of the clientele is corporate, so the people are not paying their own money, someone else is paying so why not charge for it anyway. But the guest satisfaction is being impacted, so they start playing games. If you are a loyalty member then you don’t have to pay, it does not make any sense.”

However, luxury hotel and resort company Rixos Hotels' Timucin Dis, chief information officer, argued that it is still costly for hotels to pay for Internet and the guest must be charged if they want to use this service.

Employee Free Choice Act On The Back Burner

Sessions were dedicated to the Employee Free Choice Act because the lodging industry is concerned over what the implications could be as hotel properties are easily subject to unionization. Although this was one of the major political concerns when the Obama administration took office, former Congressman Max Sandlin of Texas assured hoteliers this issue is and will remain on the back burner.

“The proof is in the pudding there is no bill, the energy has gone out from it and other than [the hotel industry] talking about it at your meeting because it is important to you for planning, but if you look for it in the newspapers you can’t find card check--it is just not a priority,” he said. “Clearly labor thought that when the democrats take over that these things will happen, but governing is much more difficult than politicking and getting things done is harder than talking about them and once you become president you have to work on the idea of consensus and there isn’t much support for getting card check passed.”

The Light At The End Of The Tunnel?

Forecasters are predicting that 2011 will be the year that the hotel industry rebounds, but the outlook for the rest of 2009 into 2010 remains bleak. Smith Travel Research predicts that in 2009 average daily rates will decline 9.7 percent to $96.43 and 2010 rates will drop 3.4 percent to $93.16. Also, 2009 demand will fall 5.5 percent while supply will increase 3 percent and in 2010 demand will pick up 1.3 percent while supply will improve 1.8 percent.

As of October 2009, weekday transient ADR declined 15.8 percent and occupancy fell 4.7 percent, whereas group weekday ADR dropped 5.2 percent and occupancy plummeted 21.7 percent, according to STR.

PKF Consulting expects ADR to decrease 10.4 percent in 2009 and dip 3.1 percent in 2010, however rates are expected to increase 2.8 percent in 2011 and by 5.7 percent in 2012. Supply is expected to climb 3 percent in 2009 and 1.2 percent in 2010, but decline 0.1 percent in 2011 and increase again by 0.2 percent in 2012. Demand is anticipated to decline 6.3 percent in 2009 and increase 1.7 percent in 2010, 5.2 percent in 2011 and 3.1 percent in 2012. PKF predicts demand for luxury, upscale and midscale with food and beverage to be positive by the fourth quarter of 2009, whereas demand for upper upscale could be positive by the first quarter of 2010 and midscale without food and beverage and economy will be positive in the third quarter of 2010.

PricewaterhouseCoopers expects ADR in 2009 to drop 8.8 percent and increase 1.8 percent in 2010. Demand will remain sluggish in 2009 dropping 5.5 percent and in 2010 increase 2.5 percent. However, supply will increase 3.2 percent in 2009 and 1.4 percent in 2010.