Thursday, January 29, 2009

New York Hotels See Sharp Declines; National Hotel Business Freefall Continues

After several years of robust occupancy and sky-high room rates, New York City hotels really hit the skids this month.

New data out today from Smith Travel Research show that hotels in New York had a drop of 24.6 percent in average occupancy and a drop of 18.1 percent in average daily room rates for the week ending Jan 24, as compared with the similar week last January.

Revenue per available room (RevPAR) plunged a whopping 38.3 percent for the week.

"While it could be argued that levels of performance in New York probably had the furthest to fall, the luxury stigma and sheer panic-based perceptions surrounding the U.S. economy have done the greatest harm to that market," said Brad Garner, vice president of operations/client services at Smith Travel, the leading hotel research company.

By "luxury stigma," he was referring to fact, as reported here last year, that hoteliers are seeing some customers who would otherwise book rooms (or conferences) back away because of the public perception problem attached to spending on higher-cost goods and services. That's only a part of the problem, of course. The bigger part is that people (and companies) simply don't have the dough.

In the U.S. hotel business as a whole, occupancy fell 13.6 percent; average daily room rates fell 2.7 percent and revenue per available room, the standard metric for hotel performance, fell 16 percent.

You heard it here first, starting last year: The U.S. hotel business is in huge trouble.

It's sad and, if you're a hotel owner, manager or employee, it's frightening. Many hotel property owners -- as opposed to the big chains who own the brand names and manage the hotels -- have never experienced a downturn in the business and are not prepared for the trouble they're seeing, or the trouble that lies ahead, as revenue drops to a point where the mortgage(s) can't be paid.

Foreclosures lie ahead for some. On Monday, PKF Hospitality Research reported that "the number of full-service U.S. hotels lacking the cash flow needed to pay their debt will increase by 25 percent in 2009."

Right now, there is a free-for-all, especially among higher-level hotels, to institute flat-out discounts on rates, or to otherwise bake discounts ("credits" for food and other things; stay-two-nights, get-one-free deals) into the stay.

Layoffs of staff are mounting.

Smith Travel's Garner said that 19 of the top 25 U.S. hotel markets reported "double-digit declines in occupancy, and continued softness" in average daily rates for the week ended Jan. 24.

Besides New York City, four of the Top 25 markets experienced year-over-year occupancy declines of more than 20 percent: Atlanta (-23.3 percent); Detroit (-22.8 percent); Minneapolis-St. Paul (-20.2 percent); and Chicago (-20.1 percent).

Besides New York, 13 of the the Top 25 markets reported RevPAR declines of more than 20 percent. And in Atlanta, the RevPAR drop was 31.2 percent.

Smith Travel classifies chain hotels in seven price/service segments. As has been the case for months, the luxury segment was hardest hit in the week, with occupancy down 19.8 percent and RevPAR down 22 percent.


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