Posted on: October 29 2009Lodging Conference allows some to hold out hope-Oct 21, 2009
By Bruce Serlin
PHOENIXâ€”Against a backdrop of an industry downturn so severe that analysts have coined the phrase “jingle mail” to describe the sound of owners returning the keys of their assets to their lenders, the 15th annual Lodging Conference convened here last month. Surprisingly, the mood, while more sober than in recent years, was hardly bleak, with many speakers and attendees sounding hopeful that the deep downturn may be nearing an end. And in fact, attendance at the conference, which was held at the Arizona Biltmore Resort & Spa, was estimated to be 1,000.
Given the hardship the industry has been through in 2009, Lodging Conference organizers Harry Javer and Morris Lasky chose “Back To Basics” as the theme for this year’s event. “Every downturn produces tremendous opportunities for those that can perceive them. What the industry needs to do, meanwhile, is get back to the basics of providing superior guest experiences,” Lasky said.
“Historically, following every downturn, we’ve had a strong upturn. The critical question is when that upturn will begin,” FelCor Lodging Trust’s chairman, Thomas Corcoran, Jr., noted at the conference’s first “View from the Top” session, the first of two. “The biggest problem we face is the industry’s inability to drive rate. Until we can start to accomplish that, we’re not going to be successful,” he added, decrying the industry’s penchant of handing over inventory to the third-party online booking sites.
Discounting rates has become widespread and is not a tenable solution to the drop in travel demand, argued Best Western International’s president and CEO, David Kong, who noted the often-cited mantra that once a hotel discounts rate, it’s tough to get the higher rate back.
Yet Kong also expressed sympathy for owners facing a significant falloff in revenue. “At the end of the day, it’s hard to fault owners for discounting when they need to have revenue coming in. The core problem is more about the imbalance of supply and demand in many markets than it is strictly about discounting,” he said.
Roger Bloss, president and CEO of Vantage Hospitality Group, drew a parallel between the discounting of rates and the situation in franchise sales. Faced with a marked decrease in potential new franchisees, many national brands, according to Bloss, are resorting to discounting franchise fees in order to entice customers. “But getting those fees back to high levels will be a long, slow process, and in the interim many franchisors are alienating their existing franchisees,” he said.
Fairmont Hotels & Resorts’ president, Tom Storey, confirmed that the luxury segment had been particularly hard hit by the drop in travel demand. Yet there are many luxury-tier leisure guests who still have the financial means to travel and are booking these hotels, Storey noted. The real challenge, he said, has been on the luxury group side. “The group segment has been restrained for the past 18 months. Without that core business it’s been difficult to get compression and drive rate,” he said.
For luxury hotel owners and operators, all the confusion is a double-edge sword. “Our guests continue to expect more service, not less,” noted Mark Harmon, principal and CEO of Auberge Resorts, LLC. “But how do you deliver a greater guest experience with fewer resources?”
Despite the downturn, there are still growth markets for lodging projects. But finding them might force developers to look beyond traditional U.S. markets to international destinations, Hyatt Hotels & Resorts’ global head of real estate and development, Stephen Haggerty, told attendees at the conference’s second “View from the Top” session. “It’s true that demand has fallen in many markets. The challenge here is managing owners’ needs for profitability. But there are still opportunities for developers in select markets, including emerging international markets like China and India,” Haggerty said.
Marriott International Executive VP Joel Eisemann used Edition, the new brand Marriott is developing in conjunction with developer Ian Schrager, as an example of how the development focus has shifted. “When we plan a launch of a new brand today, we don’t just take its appeal in the U.S. into account. We factor in international appeal. Through the downturn and credit crisis, the pipeline for Edition stayed stronger internationally than it did in the U.S,” Eisemann said.
While financing is more readily available in international markets than in the U.S., potential owners generally are hesitant to commit to deals today until they’re confident values have been established and that prices are relatively stable. “Billions of dollars are sitting on the sidelines waiting to pounce,” said IHG’s chief development officer for the Americas, Jim Anhut.
Investors are being understandably cautious, Jeff Wagoner, president of Wyndham Hotels & Resorts, further pointed out. “You don’t want to pounce too early because you don’t know which other assets are going to be out there in three to six months,” he noted.
Once occupancy and rate start to return to normal levels, the picture will start to improve, according to Peter Strebel, chief revenue and development officer for Dolce Hotels & Resorts. “It’s hard for owners to ascertain the true value of assets,” he said. “Everyone says there will be a new normal, but it’s not yet clear what that normal is.”