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Published on Tuesday, July 15, 2008

No gamble: hotel room rates declining

Declining hotel room rates may be good news for travelers but bad news for owners and the industry, say tourism observers.

Take the example of Las Vegas.

A new survey by LasVegasAdvisor.com shows that rates are lower than they’ve been in five years.

The Web site found that half of the 84 casino hotels surveyed offered July rates of $49 or less per night; 30 casinos had rates of less than $40 a night. There’s even a bargain rate of $19.99 offered by Palace Station.

Luxury hotels are slashing their prices too, according to the survey.

Among the low nightly rates found at the time: Monte Carlo $60, Hard Rock for $69, and Treasure Island for $76.

“These are exciting times in Vegas if you can get here,” Anthony Curtis, publisher of LasVegasAdvisor.com, told USA Today. He added:

“After five years of escalating prices, suddenly we’re seeing deals again.”

Many observers blame cutbacks in airline travel for a projected future drop in hotel rates.

But there was even worse news when PRK Hospitality Research released a study that found US hotels could face a decline in lodging demand greater than that experienced during the turmoil following the terrorist attacks on September 11, 2001.

Under a worst-case scenario, a 1% decline in the number of seats flown within the US will result in a 0.39% decline in the demand at the nation's hotels.

"Our research measured the historical relationship between these two components of the travel industry. This allowed us to project just how much business hotels stand to lose given the cutbacks in capacity announced by the major airlines," said Mark Woodworth, president of PFK.

"If airline capacity is reduced by 10% as some have suggested, then lodging demand would fall off 3.9%. To put this in perspective, the decline in lodging demand experienced in 2001 was just 3.3%," said Mr Woodworth.

A 3.9% reduction in lodging demand for the year would translate into approximately 40 million fewer room nights occupied, or $4.3 billion in revenue, on an annual basis.

"With losses like this, hotel operators would be forced to make drastic cutbacks in staffing and other operating costs," Mr Woodworth said.

Growth has stalled for industry giant Marriott International Inc., which in recently released earnings reports lowered its forecast for growth.

JPMorgan analyst Joseph Greff said he expects Marriott to report a slowdown in leisure transient and corporate demand.

The AP said in an Overview: “Hotel operators including Marriott been under pressure as the housing slump, economic uncertainty and soaring fuel and food prices have cut into consumers' travel spending.”

Report by David Wilkening

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