Despite a multitude of uncertainties in a slow and uncertain economic recovery, the hotel industry has had a strong performance this year, with record levels of demand, double-digit profit growth, and more people working in the lodging industry today than ever before.
News coverage of the high unemployment rate, lack of lending, European debt crisis, a potential war with Iran, the fiscal cliff, cuts in government spending, tax increases, and a possible recession in 2015 have created a sense of doom and gloom, but hotel executives who spoke at the 18th annual Lodging Conference general sessions in Phoenix this week agreed that it’s time for industry members to take more risks and raise rates.
A perceived volatility in the marketplace has prevented hoteliers from pushing rate, said Liam Brown, chief officer, owner and franchise services COO, select service and extended stay lodging, the Americas, for Marriott International Inc. “Our challenge as an industry is to be confident from a pricing standpoint,” he said.
According to Vail Brown, vice president of global business development and marketing for STR, the first eight months of 2012 were strong, with occupancy back up above 60 percent and growing at 2.9 percent year to date. Average daily rate (ADR) is growing at a faster pace than occupancy, at 4.3 percent, with revenue per available room (RevPAR) growth at 7.3 percent.
In fact, the industry reached an all-time high in room revenue at $78 billion, with growth at 7.7 percent. The imbalance of supply and demand is the main driver of this positive performance. “Demand has been outpacing supply for over 25 months now,” Brown said. For the remainder of the year, demand will grow at 2 percent, and supply will be somewhat muted. Although ADR growth is pacing higher than occupancy, she expressed concerns that this will plateau too soon for the industry’s liking.
Nancy Johnson, executive vice president of development for Carlson Rezidor Hotel Group, said she can’t blame hoteliers for wanting to maintain a low risk profile, but expenses are increasing and owners need to be aggressive in their rate strategies to maximize profit. “It is an unprecedented time in our history,” Johnson said. “It’s time for leaders to step up, be bold, take risks and raise rates.”
To achieve profitability, Tom Magnunson, chief executive officer of Magnunson Hotels and Globel Hotel Exchange, suggested that owners seek creative ways to operate at a lower cost, whether through self branding, direct distribution, or social media marketing strategies.
“I always learned that if you can operate a business in the worst of times, and be profitable, then when the good times happen, that’s your pay day,” Magnunson said.
At the peak in 2008, nearly 180,000 hotel rooms were under construction, and today there are approximately 67,000 and rising, said Bruce Ford, senior vice president of Lodging Econometrics. "The economy outside the hotel industry is not very healthy," he said, "but the hotel industry economy is very good." Construction starts and new projects are up, he said, but there is still “business constipation” when it comes to hotel development, with more players interested in pausing than being active.
David Pepper, senior vice president of global development for Choice Hotels International, said he’s never heard so much talk about operations rather than development and deals. “We’re so focused on operations and creating more profitability in what we have today,” he said, “versus what we’re going to try to do going forward in the future.”
Tension surrounding the outcome of the presidential election was palpable and hotly debated at the conference, which was attended by about 1,400 people. There are still unanswered questions, but regardless of whether President Barack Obama is re-elected or if challenger Mitt Romney wins, industry members are eager to do business, said Roger Bloss, president and CEO of Vantage Hospitality Group. “People want to get back into the game.”