Industry Research

Hotel CEOs: Softness Holds, Rebound Later

Posted on June 24, 2009 by LCT Staff - Also by this author - About the author

NEW YORK — Chief executives from such major multibrand hotel companies as Accor, Choice and Starwood this month said corporate hotel rates recently negotiated downward are unlikely to increase anytime soon, and that they expect travel program cost-saving measures to remain long after the economy recovers, but they also expressed confidence that group and transient business travel ultimately would bounce back.

Noble Investment Group senior managing principal and CEO Mitesh Shah, one of eight chief executives who spoke at a press briefing during this month's New York University's International Hospitality Industry Investment Conference, said the length of the economic downturn, now in its 18th month and already longer than most recent lodging industry downturns, meant it would take time for hotel companies to bring corporate rates back to the levels reached in 2007.

Noble, which operates upscale hotels under Marriott, Starwood, Hilton, Hyatt and InterContinental Hotel Group brands, has seen corporate buyers push rates lower, and they will have the ability to dictate pricing for a while, he said.

"They understand that if they are traveling, they're one of the very few traveling, so they've gotten very aggressive," Shah said. "That's not going to change until demand starts increasing."

Buyers have not only pushed for lower rates, but also for such amenities as breakfast, transportation, and complimentary Internet access.

The one factor countering that is the expected slowdown in supply once hotels under construction are completed, the CEOs said. Supply growth is less than in other downturns, Shah said, and Starwood Hotels & Resorts Worldwide president and CEO Frits van Paasschen added that the peaks reached in 2007 were not that high in real-dollar terms compared with previous cycles.

"We'll go through a long period where supply is going to be constrained," van Paasschen said. "When the economy comes back, there will be a pretty good bounce back in rate."

Rate drops have not been consistent among all hotel tiers, said Choice Hotels International president and CEO Stephen Joyce. His company, which operates mostly in the mid-price tier, has not lost much ground in rates, he said.

"The higher you go in the segments, the worse the business has become," Joyce said. "Our folks have tended to hold their rate, and we've made a concerted effort to talk to them, telling them that lowering rates does not drive demand, it drives lower revenues."

Joyce said Choice also pushed loyalty program sign-up as the company has seen an influx of travelers, including downtrading corporate travelers. "There's enormous pressure, both from a social standpoint and from companies pushing to look for things that are more value-oriented," he said.

The CEOs said that while group business is certainly down at their properties, they do not expect to see any long-term shifts in the group, transient, and leisure travel balance.

"Because group business is so far down, there will be tremendous pent-up demand," van Paasschen said. "The conventions, the product launches and the training sessions that are such an important part of the business that it will come roaring back."

The CEOs were not too concerned about technology replacing meetings, although they said they would have to demonstrate their value as companies during the downturn explore the use of videoconferencing and other technologies to cut down on the need for group travel.

"There is the value of the meetings, but people will have changed their habits, and it may be up to us to convince them," said Gilles Pelisson, chairman and CEO of Accor Hospitality. "As companies get cost-conscious, how do we as an industry promote the value of meeting?"

Regardless of their efforts, the CEOs said some policies were here to stay. HEI Hotels & Resorts chairman and CEO Gary Mendell, for example, said he has seen an increase in hotel program compliance by corporate travelers.

"The downturn is teaching companies and giving them the opportunity to use technology to control travel like they haven't done in the past," Mendell said. "I'm not sure that will go away."

Source: Business Travel News

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