Hotel industry: currently in survival mode but outlook improving

Even casual observers can see the impact of the recession most clearly in the hotel market: run-down rooms, fewer bathroom amenities, closed club lounges, fewer concierge staffers, slower room service and reduced restaurants hours.
 

“It’s the worst downturn in decades — perhaps ever,” said Robert Habeeb, president of Chicago’s First Hospitality Group, which operates 40 hotels in eight states. He adds:
 

“The industry is in survival mode.” But it is clearly and finally turning around.
 

The immediate future for this year is still tight but PKF-HR is predicting hotel room revenues to grow 10.5 percent in 2012, which is growth that has not been equaled since the inflationary days of the late 1970s.
 

“Fortunately for hotel owners and operators, as economic conditions begin to turnaround in 2011, so should travel and the pricing power of hotel managers,” said R. Mark Woodworth, president of PKF Hospitality Research.
 

Hit by a declining demand for rooms, low room rates and plummeting revenue, hotel companies have laid off hundreds of thousands of employees and are struggling to maintain quality. A record number of hotels are defaulting on mortgage payments. Hundreds have been taken over in foreclosures.
 

The toll on the industry:
 

• In January, US hotels had a record-low 45.1 percent occupancy rate – the lowest January rate since industry statistician Smith Travel Research began tracking data in 1987.
 

• Last year’s rate – almost 60 percent – was the lowest ever recorded by the company.
 

• About 400,000 US hotel employees were laid off during the past two years, said Joe McInerney, president of the American Hotel & Lodging Association.
 

• Construction began on 78 new hotels in last year’s fourth quarter, compared with 158 during the same months in 2007, according to Smith Travel Research.
 

• The total property value of US hotels has fallen by up to 50 percent from its peak in 2007, according to Fitch Ratings, which provides ratings and analytical commentary to the world’s credit markets.
 

Upscale hotels have been hit hardest, and some have closed.
 

But budget and non-luxury hotels haven’t escaped the downturn.
 

Despite the industry’s deep financial woes, William Marks, managing director for San Francisco-based JMP Securities, says he doesn’t believe the industry has been permanently altered.
 

"We are just experiencing the cyclical nature of the industry," he said. "Unfortunately, this is a more powerful downturn than normal."
 

Though the travel industry expects the number of travelers to increase this year, hotel experts don’t foresee rates rising quickly.
 

"Despite early signs of a recovery toward the end of last year, few properties expect to raise prices," said Scott Booker, vice president of Hotels.com. "This could be another year of significant values for both business and leisure travelers worldwide."
 

McInerney acknowledges the difficulties negotiating in a buyer’s market. But he says the country is slowly coming out of recession, and he sees "a little light at the end of the tunnel."
 

By David Wilkening