Tuesday, December 23, 2008

Severe Downtown in Hotel Industry

Here's another update on one of the underreported current business stories:

After riding high for the last few years, U.S. hotels are getting clobbered in the economic slump.

And luxury hotels, as I have been reporting here, are getting hit the hardest.

Data for November released today by Smith Travel Research, the leading hotel research firm, show a 12.9 percent industry-wide decrease in revenue per available room (RevPAR), the key metric in analyzing hotel fortunes. The comparison is to November 2007.

But lookit the November RevPAR as broken out for the luxury segment: At luxury hotels, RevPAR plunged 20.7 percent in November.

Down the scale after the luxury niche, the trend is obvious: For "upper upscale" chain hotels the decline is 13.7 percent. For "upscale" hotels it's minus 12.8 percent. For "midscale without food and beverage" the decline is 11.1 percent. For economy hotels, it's 9.6 percent off.

Mark Lomanno, the president of Smith Travel, noted that the "one silver lining" is that "the industry has been able to achieve positive year-over-year, year-to-date ADR [average daily rate] growth through November."

Even in the luxury segment, average daily room rates this year through November ($288.11 nationally) were up a slight 0.6 percent compared with the same 11-month period in 2007.

Still, luxury hotels are loath to be seen discounting and, as noted here before, are instead offering many promotions, including three-nights-for-the-price-of-two type deals, that are actually rate cuts that don't show up on the nightly rate cards.

We'll see how long before the dam bursts and hotel room rack-rates, especially at the top levels, come tumbling down. That's because a lot of customers, especially business travelers, are "trading down" to cheaper-level hotels -- and many simply are not showing up at all.

Overall industry-wide average occupancy in November in U.S. chain hotels fell 10.6 percent, Smith Travel said. For luxury hotels, the drop in occupancy was 15 percent in November compared with November 2007.

However, Smith Travel is optimistic that the industry slump won't last throughout next year. "We believe that after a very bumpy first half of 2009, the hotel industry will begin to see the light at the end of the tunnel as the second half of the year unfolds," Lomanno said.


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