Coming To Hotel Market Near You — Or Maybe Not …
A lot of hotel pipelines are bulging but that's not going to translate into a nationwide let's-make-deal mentality, according to a panel of analysts and developers assembled to help celebrate the 10th anniversary of the launch of the Staybridge Suites extended stay brand. Perhaps predictably, the panel expected to see more stability in the extended stay market. But even there it's likely to work out on a location-by-location and customer-by-customer basis.
"Some of our hotels are in university towns, state capitals or near veterans' hospitals," said Ed Croom, president of Janko Hospitality. Those hotels will do okay, predicted Croom. But he wasn't so optimistic about locations in corporate markets, noting that Caterpillar (based in Peoria, IL, where Janko has one of its three Staybridges), "has said there will be no more travel. ... Those who go after transient will have to ride it down."
Except for the fortunate few, the question is "How long will this last?"
Analysts at Smith Travel Research have seen "some tremendous drops," reported Bobby Bowers, senior vice president at the company. He forecast a bathtub curve, with rates and occupancy leveling off in the third and fourth quarter, then curving back upwards in 2010.
That's reason for optimism, according to the Staybridge panelist David Wespriser, managing member of Hotel Development Services: "If I open a couple hotels in the next year, it will be into the up-cycle."
There's more than a couple of hotels in the pipeline, however. Staybridge itself has 178 under construction or approved for development. There are already 142 in operation, the vast majority of them in the United States, where the concept was born. The brand's franchise approval committee looks for the very type of locations that Croom describes, according to Rob Radomski, vice president of Intercontinental Hotel Group's extended stay brands (including Staybridge Suites): more recession-resistant organizations and corporations like college campuses, corporations that have extensive training programs, veterans hospitals and other large medical facilities, centers of government ... There's even a degree of opportunity because of the economy, he adds: downsizing companies often rehire their expert employees as consultants and send them out on the training circuit.
If you measure pipelines by number of projects, IHG's — at 1,244 projects — is the largest. Based on the number of rooms that will result from the projects, IHG still ranks among the top three, according to Lodging Econometrics (LE), but shares top ranking with Marriott and Hilton, all in excess of 100,000 rooms. For many, location of those developments are of greater importance. LE says Atlanta and Dallas, will see significant increases in their room counts still this year. Chicago and Orlando are also looking at whopping increases (16,896 and 15,375 rooms respectively) but most won't start to come online until late 2010. Other hot spots: New York, Phoenix, San Antonio, Houston, Washington and Philadelphia.
None of it is going to be easy. "The world-wide lodging industry is heading toward some very difficult and challenging times," reports Steve Rushmore, president of HVS, an international hotel consultancy. "The lack of credit and liquidity, coupled with a downturn in travel and spending, will have serious impact on the profitability of hotels. The relationships between hotel owners and lenders are going to be strained, and we will probably see some workouts, loan restructurings, foreclosures and bankruptcies."
"What's under construction will be finished. Where the ground's not broken developers will hold off," Wespriser told the panel audience, adding that his company had dropped out of a few contracts to buy land. Nevertheless, Hotel Development services, which added three hotels to its hospitality unit in 2008, expects to add three more in 2009, including a Fairfield Inn & Suites this month in New Buffalo, MI.
But, as predicted by Rushmore, financing has become problematic. "We just tried to refinance three hotels," reported Croom. "These are operating hotels with great financial results but the amount of paperwork was astounding. There is financing out there but mostly in the small markets."
What's likely to occur first, warns LE's third quarter report, is "a series of forced hotel sales. Some will be due to the inability to refinance. Others will be adversely impacted by age or by competitive pressures from new supply coming online."
These Days, You Have To Focus On Both The Forest And The Trees ...
There's been a change in the way that hotels are negotiating their rates and some travel managers may have been so involved in finalizing their 2009 hotel programs that they've missed it, according to Barry Noskeau, executive vice president of ALTOUR, a group of travel-related companies whose offerings include technology, ground transportation and private aviation as well as agency services.
"Most corporations have fixed discounted rates," says Noskeau. "However, as the economy downturn continues and hotel occupancy rates decline, hotels are moving to 'percentage off' and 'best available rate' (BAR), offering much lower rates than the negotiated corporate rate."
It's not that travel managers are sleeping on the job; there's just a lot to cope with in the current climate. Besides the change in hotel rates, says Noskeau, "pricing in all categories of travel have become less transparent. Topaz showed that travel agencies beat a search via web sites 95 percent of the time. One of the reasons is that [some] airlines ... have taken themselves out of the various search sites, like Expedia, to prevent their being shopped and compared by the consumer."
But travel managers have been busy putting out brush fires, focusing on cost reduction and cost avoidance, says Noskeau: "Is the trip necessary and could the result of the trip be accomplished some other way by phone or video conference. If the trip is justified, does it fit within budget and travel policy. If it is outside budget, then opportunity to deny or adjust cost of trip. If within budget and policy, then opportunity to see if there was a lower fare that the traveler turned down e.g. could it be worth accepting a non-refundable fare and take the risk of paying change fees that would still be less than fully refundable ticket."
While travel management software can help with those kinds of analyses and decisions, it's important to use the full range of capabilities being offered.
• Create travel summaries that present a month-to-month snapshot of travel costs;
• Identify trends and opportunities for cost reduction;
• Generate reports on specific departmental or individual travel expenditures; and
• Allow managers to analyze the cost-benefit of business trips, making changes or cancellations.
The Last Word
Try this for an interesting exercise in identifying points of view, particularly in the current economic crunch: ask a sampling of colleagues to read McKinsey Quarterly's November interview with Idris Jala, CEO of Malaysia Airlines. We tried it here at BTE in the process of selecting the appropriate excerpt for this issue's Speaking Freely column. Everyone seemed to find something of interest but there was by no means a strong consensus. Rather, each of us found our personal lesson or reinforcement, as the case may be. When it comes to food for thought, this one turned out to be a regular smorgasbord.