Rising hotel room rates reflect robust rebound in New Orleans

Posted on: June 4 2012

June 03, 2012

By Jaquetta White, The Times-Picayune The Times-Picayune

Hotel occupancy rates in the New Orleans area are higher than they've been in more than a decade, thanks to refurbished hotels, a jam-packed event calendar and continued recovery from the levee breaches after Hurricane Katrina in 2005, according to local hotel operators. "We're in a very good market. We're luckier than most," said Tod Chambers, general manager of The Roosevelt Hotel and president of the Greater New Orleans Hotel & Lodging Association. "A lot of good things have happened for us to be able to drive rates and (revenue) here in the city."
hotel-intercontinental-exterior.jpgChris Granger, The Times-Picayune

What hotels charge their guests is important to the economic health of New Orleans because taxes generated from those rates are used to pay for a variety of city services.

In April, the average daily rate at New Orleans area hotels was $154, the highest it has been since February 2002, when hotels commanded $159.40 from guests, according to a report by Smith Travel Research. The average rate for the first four months of this year, the last period for which data is available, was $148.61, a 12.6 percent improvement on the first four months of last year. The current year was helped along by a number of major events including the BCS Championship game and the NCAA Men's Final Four.

New Orleans produced the greatest percent change in average daily rate from April 2011 to April 2012 compared with other cities in the top 25 hotel markets.

"It doesn't seem like the nation is rebounding quite the way we are," said John Williams, director of the University of New Orleans Lester Kabacoff School of Hotel, Restaurant & Tourism Administration. "We're doing pretty well. And we just came through an unbelievable March and April."

Several factors are at play. The most obvious is that the hospitality industry is still rebounding from the effects of the levee breaches after Katrina. Hotel occupancy dropped to a low of 48.4 percent in New Orleans in December 2006, after being artificially pumped up by relief workers and residents. That figure coincided with an average daily rate of $103.23, less than half of which the hotels recorded as profit.

"Although we're many years removed from Katrina, we have been growing back into who we were before the storm, so our growth pace has been quicker than other markets that have been stable over that time," Chambers said.

The downtime after the 2005 flooding created pent-up demand for travel to the city, Chambers said. "It's surprising, because you still have an ebb and flow in the nation and that's not really the case, here," Williams said. "There's no sense of having to lower rates to be competitive with other places."

That's not to say that rates in New Orleans are higher than they are in other major tourism destinations. In New York City, for instance, last month's average daily rate was just north of $253. But year-over-year growth, at 7.2 percent, was much less than it was in New Orleans.

"We're certainly not going to go that route and try to exponentially increase rates," Williams said. "Holding them stable and having them that way over time works well for our properties. Hoteliers have realized that when you have that knee-jerk reaction and lower the rate, you have to re-educate the customer when you want to go higher and that causes customer dissatisfaction."

To capitalize on the pent-up demand for travel to New Orleans that the events of nearly seven years ago created, the tourism industry has worked hard to create reasons for people to come to town.

"That created a pattern that was event driven," said Al Groos, general manager of the Royal Sonesta Hotel. "Now you don't have the up and down, up and down."

The Ernest N. Morial Convention Center, for instance, created a conference out of thin air. The International Disaster Conference and Expo was held at the Convention Center in January, a time when the riverfront facility is hurting for business, and drew about 5,000 to 6,000 attendees interested in disaster preparation, response, recovery and mitigation techniques.

Likewise, a host of new festivals have cropped up that drive people, especially weekend visitors within driving range, to town and put pressure on hotel occupancy thereby sending rates skyward.

"When there's high (hotel occupancy), we can ask for a higher rate and people will pay it," said David Teich, general manager of the Windsor Court Hotel, which recently underwent a nearly $25 million makeover that included adding a spa.

But hotels haven't just been banking on events to drive people to town and keep rates high. They have been spending millions on renovations in a bid to snag return visitors.

"Most of the hotels in the city have gone through significant renovations," Chambers said. "Certainly the quality of product is helpful for the return guest that has come back."

Late last year, more than two dozen New Orleans area hotels were undergoing, had recently completed or were about to begin renovations.

"The hotels are looking fresh and new everywhere and that's just not the case in other cities," Teich said. In May, rates at the Windsor Court were up 11 percent over the same month last year, Teich said.

Not only are rates higher citywide, but so is RevPar, or revenue per available room, a key lodging benchmark. In April, RevPar at New Orleans area hotels was $115.33, the highest it had been since February 2009, when hotels recorded $119.18 in revenue from each room booked, according to a Smith Travel Research. RevPar in the first four months of this year, was $105.11, up 14.8 percent from the first four months of last year.

With that number climbing, hotels are able to reinvest in their properties, presumably keeping them fresh and attractive to visitors and creating a cycle of higher rates, higher investment and greater economic gain for the city.

"It increases the value of the hotel on the market and allows us to command a higher rate," Teich said.

The Windsor Court sets aside a percentage of its RevPar for capital projects each month, Teich said.

To be sure, it's unlikely that New Orleans will be able to sustain the rate at which it's growing. The upcoming summer season, for instance, will immediately test the city's mettle, but Williams said he isn't expecting rates to fall too fast, too soon.

"I would be willing to possibly say that this year rather than the typical drop-off of 15 to 20 percent that we're trending where we have enough activity coming in that it may not hit that much reduction for the last six months of the year," Williams said.

Hotels will be helped along this summer, Williams suspects, by lower gas prices that would entice travelers who live within driving distance to make the trek.

"It probably won't translate over enormously for the overnight guest, but we will get some good effect from it," Williams said.