Austin Hospitality Blog

While presenting at the Hospitality Leadership Forum in early November, Mark Lomanno, president of research firm Smith Travel Research, made a statement ominous enough to send chills up the spines of revenue managers everywhere.

“On an inflation-adjusted basis,” he began, “ … it’s going to probably take eight to 10 years to get room rates back to where they were in 2007.”

This assessment was more severe than the reality faced in the aftermath of 9/11, when it took rates six years to recover on an inflation-adjusted basis, according to STR. But then again, this downturn also has seen historic extremes in industry performance declines.

Still, not everyone agreed with Lomanno’s projection. Jim Rozell, senior director of revenue optimization at Carlson Hotels Worldwide, said that 2007 was an inflated benchmark to begin with.

“In 2008, portions of 2007, rates were not where they should have been,” he said. “They were well above where they should have been,” adding rates are now where they should have been.

For the industry to think it will recover to 2007 levels is probably unrealistic, he said.

Yet others, such as Bonnie Buckhiester of Buckhiester Management, a Seattle-based yield management consulting firm, concurred with Lomanno.

And whether you agree with the claim or not, it’s important to start thinking about recovering rates at the onset of the economic upturn. Here are five questions every good revenue manager should ask himself or herself to get started:

1. Have you forgotten your price point?

There’s a difference between slashing prices and making discounts look like promotions, Rozell said. The former implies cutting rates to establish the lowest competitive price point among your peers, assuming that guests’ booking decisions are based solely on price.

Promotional discounts, however, offer cost-conscious consumers a value-oriented deal that maintains a reference to the original price point. For example, if a guest buys two nights and gets one night free, they still know how much that third night is worth.

“The key thing is to keep that higher reference price out there, so that people being driven by value still realize this is a (US)$299 product,” said Chris Anderson, assistant professor for the Cornell School of Hotel Administration.

2. Are you using the right comp set?

“Revenue mangers have to go back and revisit their comp sets and determine if they’ve got the right comp sets,” Buckhiester said. This is especially important as revenue managers learn to navigate the new normal, in which five-star hotels are charging four-star rates, four-star hotels are charging three-star rates, and so on.

Read “It’s all about who is in your comp set.”

3. How often do you update your forecasts?

Monthly forecasts are great for C-level boardroom meetings, but they don’t provide the type of up-to-date information needed to make accurate, day-to-day decisions from the revenue management perspective, according to Buckhiester.

So how often is often enough? Track accuracy by the day, Buckhiester advised. This is especially important for hotels at which revenue management is not outsourced or automatic.

4. What’s your most profitable business mix?

It’s not enough to determine your most profitable business mix in general, Buckhiester said. You must determine the most profitable business mix for today’s market conditions, and then adjust it accordingly as the economic climate changes.

To do so, look at all revenue streams, all income, all internal and external costs, and really drill down into them to determine what mix of guests will generate the highest total revenue—not just the highest initial room rate.

5. Does the product match the price?

Price points shouldn’t be arbitrary; they should accurately reflect the product and demand, Buckhiester said. While this might sound obvious, far too many hoteliers aren’t analyzing where the demand for certain guestrooms and packages actually lie.

Buckhiester advised taking a month or two to track upgrades to see what guests want and are willing to pay for. Then, build in up-sell opportunities to capture that demand.

Kimpton Hotels, for example, offers guests upgrade opportunities in their confirmation e-mails. “This is what you bought … you can get this upgrade for (US)$10 right now instead of (US)$20,” Buckhiester said. “It may or may not be available when checking in, and you can change your mind.”

While Nervous Nellies are still ruling the roost, signs of an industry rebound are finally becoming tangible. During the last couple of months many industry insiders were saying a recovery was afoot, but the evidence was anecdotal. Now it looks as if there are some provable signs – and the numbers to back it up — that demand for hotel room nights is coming back.

However, the biggest problem going forward will be pricing power. That is, hoteliers will still have a hard time pushing that ADR back to levels enjoyed just a little over a year ago. As the hotel industry rapidly lowered prices to pump up occupancy, the industry will now have to reckon with a baseline price that is much lower than it’s been in about five years.

“It is getting a little better,” said Mark V. Lomanno, president of Smith Travel Research (STR), during this past weekend’s AHLA Fall Conference held in conjunction with the International Hotel/Motel & Restaurant show here in New York. “During the last couple of months, demand has begun to trend upward and I can say with a great deal of confidence it is not going to get any worse.”

Lomanno said that, while the hotel business has been in a malaise, on average there are 2.7 million rooms sold every day in the United States.

According to figures from STR, rates during the last year declined precipitously from an average daily rate (ADR) of $107 a night to about $96. However, that seems to have hit a plateau that is reminiscent of the previous downturn experience in fall 2001 after the terrorist attacks of 9/11. But it’s the revenue per available room (RevPAR) that has suffered most during the last year.

Lomanno said RevPAR is at the lowest levels since the company began tracking that statistic 16 years ago. RevPAR has plummeted 18.1 percent this year, a full 10 percent by last year’s most dour estimates predicted by PricewaterhouseCoopers last year at this event. RevPAR slipped just 1.8 percent in 2008. As for ADR, it’s dropped about 9.1 percent so far this year after a 2.5 percent decline in 2008.

Though Warren J. Marr, director with PricewaterhouseCoopers (PwC) said the U.S. economy has stopped contracting, he expects the economy recovery to be “uneven and a bit choppy.” Part of the reason is the severity of this past decline which has been extremely significant, especially for hotel occupancy. “The magnitude on occupancy during this decline has been greater than at least the last two previous cycles,” said Marr.

He said, however, that leisure business will still be strong, although it’s because the consumer is more highly engaged in finding the best deals. According to PwC, on September 15, 2008 – the day Lehman Brothers fell apart – consumer interest in travel deals was 13 percent below average. On November 5, 2009, interest was 7 percent above average. That’s a huge swing that is helping to further depress pricing power.

“The Internet has added to the challenge and the industry needs to be targeted as to how and why to discount. What is happening now is if I find at 8:00 AM you drop your rate, by early afternoon your competitors will too. That is something you didn’t have to deal with 10-15 years ago,” said Marr.

Interestingly Marr broke down exactly where the occupancy declines have come from during the past year. And it’s group business that is essentially responsible for the mess the industry is in. Call the AIG Effect or whatever, but 81 percent of the decline is due to vanishing group business, something many hoteliers don’t see fully coming back until 2011. Seventeen percent of the decline was due to transient business; however, Marr said it was offset by increases in leisure travel. Two percent of the decline was due to contract business, such as fewer airline crews utilizing rooms.

“Our real focus is on utilizing new strategies and technology for 2010 and beyond to drive revenue,” said Jeff Wagoner, president, Wyndham Hotels and Resorts. “We are all looking at 2011 for when things turn around. Unfortunately we have all of 2010.”

One area STR’s Lomanno said could help boost pricing is through better yield management. While the science of pricing rooms is the right way, it’s still not being used effectively to bump up weekend rates as leisure travelers still set their sights on getting away. “Yield management still isn’t beinf applied properly,” he said.

The University of Texas at Austin’s new (and only) hotel and conference center has a unique design and hospitable home for your group! Situated conveniently in the heart of Austin, the hotel offers inspiring views of the UT Tower, State Capitol or the hotel’s serene central courtyard!  Whether your group needs rooms for an educational conference, wedding or sports tournament  this hotel will make your stay unique and memorable. The hotel features 276 guest rooms and 21 suites.  Room technologies and guest amenities will make your stay for either business or leisure equally enjoyable.

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Luxury hotels will become the fastest-growing business for Marriott International Inc., a U.S. company that has its roots in budget lodging, President Arne Sorenson said.

“This segment will grow faster than the rest of our business,” Sorenson, who is also Marriott’s chief operating officer, said in an interview yesterday at the company’s Bethesda, Maryland-based headquarters.

Marriott, the owner of mid-priced brands such as Courtyard and Residence Inn, has added upscale locations to capture that sector’s higher profit margins as the economy improves. The company announced a new luxury brand last week, the Autograph Collection, through which it expects to add as many as 100 independent hotels as operators struggle with a travel slump.

“There’s talk about a return to simpler things but that talk always happens during recessions,” Sorenson said. “The fact is, the wealthiest demographics are growing very fast, like in China and Russia. They will become increasingly important.”

The company plans to open its first two hotels under the new boutique brand Edition, a partnership with developer Ian Schrager, and two Ritz-Carlton hotels in Hong Kong and Shanghai next year. Through Edition, Marriott eventually expects to add another 100 hotels to its operations, Sorenson said.

Fees Decline

Marriott is seeking expansion opportunities after third- quarter revenue from franchise fees dropped 7.4 percent to $100 million and management fees slid 19 percent to $116 million. Occupancy in the U.S. dropped to 57 percent this year through September from 63 percent a year earlier, according to Smith Travel Research Inc.

Marriott is also considering acquiring brands, particularly in areas where the company is “underrepresented” such as in southern Europe, Sorenson said.

Separately, Chairman and Chief Executive Officer J.W. Marriott Jr. said he was seeing early signs of a pickup in travel but doesn’t expect substantial economic recovery in the near future.

“I don’t think the economy is going to get better for a while until we solve the unemployment problem,” Marriott Jr. said today during a question-and-answer session at The Economic Club in Washington.

Marriott Jr. voiced disapproval of Washington lawmakers who have criticized lavish business travel, causing what he called “a blanket of despair and dark clouds over the industry.”

He said he backed a congressional bill that would help promote the U.S. as a destination to international visitors. The number of foreign travelers has stagnated since 2000, Marriott Jr. said.

The company opened its first hotel, the 365-room Twin Bridges Motor Hotel in Arlington, Virginia, in 1957, according to Marriott’s Web site.

Marriott fell 59 cents, or 2.2 percent, to $26.40 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has climbed 37 percent this year.

Want to order a burger and beer from room service before you check into your hotel so dinner is waiting for you?  Guests at Hilton, Embassy Suites Doubletree hotels will be able to do that using a new iPhone and iTouch application that parent Hilton Worldwide is announcing Monday.  Hilton also will unveil Apple apps for Conrad, Hilton Garden Inn, Homewood Suites and Hampton Inn chains. All will let guests check into their rooms remotely up to 48 hours in advance, and let guests choose bed type, pillow type and more.  Hilton plans for the apps to become available this month and next, pending Apple’s approval.  Once they can be downloaded, Hilton’s apps will become the latest and most sophisticated of the apps recently launched by big hotel chains.  The chains are scrambling to create ways to keep up with consumers who increasingly arrange travel on the fly using mobile devices.  The iPhone and iTouch applications market has been exploding because research indicates iPhone users disproportionately use the Internet to do everything from research products to conduct their banking, says Henry Harteveldt or Forrester Research. He says Apple also makes it easy to create apps.  The hotel apps, he says, “help you manage your stay.”  ”If you’re on the road constantly, you can use this to book a hotel,” he says. “There are people out there who constantly are on the go, and they never quite know where they’ll be staying.”  Of the 100,000 existing apps available on the iTunes store, about 5% pertain to travel, making travel the fifth-biggest category after games, entertainment, music and weather, says Chuck Sullivan, a Hilton executive who oversees global online services.  Two other hotel apps made a splash in recent months:

Priceline.com’s Hotel Negotiator app launched last week, and it already is iTunes’ fifth-most-downloaded free app, according to the iTunes website.

When Starwood launched its SPG loyalty program app in June, it was downloaded around 40,000 times and reached No. 11 even before Starwood began promoting it, says Brad Minor, a Starwood spokesman.

With hotel companies hit hard during the recession, the big chains are picking priorities carefully. And designing apps strictly for Apple gadgets doesn’t always rank No. 1.

InterContinental Hotels Group, which runs the Holiday Inn Express, Hotel Indigo and InterContinental chains, has been focusing on making its websites convenient for all mobile browsers, including BlackBerrys and Palms, according to Francie Schulwolf, a company spokeswoman. The company plans to launch its iPhone application early next year, she says.

Marriott International doesn’t have a timeline for an iPhone/iTouch app as it, too, is still focusing on website functions designed for all smartphone users, says John Wolf, a Marriott spokesman. Marriott’s mobile site receives 500,000 visitors each month, he says.

Starwood Hotels & Resorts Worldwide Inc. said it plans to sell its Bliss spa and product business to Steiner Leisure Ltd. for $100 million as the company looks to focus on operating its hotels.

As part of the deal, Bliss and Remede spas and amenities will remain exclusive to Starwood in the hotel category at W Hotels and St. Regis Hotels, respectively.

The sale is on top of the planned sale of $125 million in other “non-core assets” that Starwood said Monday are due to be closed on this quarter.

Bliss spa products are found in 15 locations. Starwood acquired the spa business at the start of 2004 from LVMH Moet Hennessy Louis Vuitton for $25 million.

The hotel owner and manager has been reporting weaker results, like many in the industry. But third-quarter earnings for the major players, including Starwood, were largely above expecations, though the results didn’t give Wall Street any more clarity on the speed, scope or depth of a nascent recovery in the recession-battered lodging industry. For its part, Starwood said revenue per available room could fall another 5% next year on top of 2009’s double-digit decline.

Also Monday, Starwood slashed its annual dividend by 78%, to 20 cents a share. Chief Financial Officer Vasant Prabhu had said in January that based on its initial 2009 earnings forecast, a payout at 2008’s level would work out to 80% of earnings.

Starwood, which has 982 properties, has also been culling its portfolio some. It sold two hotels in the third quarter for about $96 million.

Steiner reported weaker results in the third quarter. The company operates spas and salons on 126 cruise ships and 51 resort spas.

CHICAGO-Locally-based Hyatt Hotels Corp. will launch its initial public offering this week. The company, one of the 10 largest hotel companies in the world, will take the ticker symbol H when shares begin trading this Friday. Company officials hope to acquire up to $988 million through the IPO.

Hyatt Hotels Corp. is not listing any of its class A common stock, except for what the underwriters can purchase if they exercise the option. Rather it is a number of the company’s current stockholders who are selling shares. In total 38 million stockholder shares will be sold between Thomas Pritkzer, Marshall Eisenberg and Karl Breyer, according to the Securities and Exchange Commission filing.

After the offering, more than 38 million common class A shares will remain as well as 130 million common class B shares. Both class A and B shareholders will vote together as one unit on deals. Those holding class A stock will have one vote per share while class B stockholders will have 10 votes per share. This structure allows the Pritker family to retain control of the company.

“Following this offering, Pritzker family business interests will beneficially own, in the aggregate, approximately 80.7% of our Class B common stock, representing approximately 62.4% of the outstanding shares of our common stock and approximately 78.4% of the total voting power of our outstanding common stock, or approximately 60.4% of the outstanding shares of our common stock and approximately 78.1% of the total voting power of our outstanding common stock if the underwriters exercise their option to purchase additional shares from us in full,” the filing states.

According to the filing, As of September 30, Hyatt’s portfolio contained 415 Hyatt-branded properties, for a total of 119,857 rooms and units. The company employs more than 80,000 people in 45 countries.

The company, which started in 1957, has seen revenues decline this year. According to the SEC filing, “For the year ended December 31, 2008, revenues totaled $3.8 billion, net income attributable to Hyatt Hotels Corp. totaled $168 million and adjusted EBITDA totaled $687 million. For the nine months ended September 30, 2009, revenues totaled $2.4 billion, net loss attributable to Hyatt Hotels Corp. totaled $31 million and adjusted EBITDA totaled $302 million.”

Hyatt officials declined to comment to GlobeSt.com about the pending IPO, citing registration with the SEC as the reason for silence.

The IPO is expected to be the fourth largest to take place this year in the US. But whether it will raise the desired amount of capital remains to be seen. The hotel company has taken a severe hit this past year, and five of the last nine IPOs ended up pricing below the expected per share price, according to reports.

“We’re running into renewed volatility in the market that we haven’t seen in some time, and one essential requirement for a robust IPO market is stability in valuation,” says Jim Rossman, head of U.S. equity capital markets at Macquarie Capital, in a Wall Street Journal article about the IPO. “The performance of the market in the last few weeks has impacted IPOs. Buyers are more likely to sit on the sidelines when they see comparable valuations coming down.”

The U.S. General Services Administration (GSA) today announced the new Fiscal Year 2010 (FY2010) federal per diem rates, which will take effect on October 1, 2009 and run through September 30, 2010.

Some examples of lodging changes for this year include:

• Phoenix/Scottsdale, Ariz., for the Maricopa Co. area mid-season:  down $120 from FY09’s $122
• Miami, Fla., for the Miami-Dade area mid-season:  up $128 from FY09’s $121
• Chicago, Ill., for the Cook and Lake Cos. area high season:  down $205 from FY09’s $218
• New York City (Manhattan) high season:  down $340 from FY09’s $360
• Kansas City, Mo., for the Jackson, Clay, Cass and Platte Co. areas:  unchanged at $107
• Las Vegas, Nev., for the Clark Co. area low season:  up $109 from FY09’s $105
• Cincinnati, Ohio, for the Hamilton Co. area:  up $115 from FY09’s $112
• Seattle, Wash., for the King Co. area:  up $159 from FY09’s $158

The nation’s economic downturn has affected per diem lodging rates in many localities, but overall the majority of locations did see an increase or no change in per diem lodging rates.

According to GSA, there will be a slight increase of 0.6% of the estimated lodging costs compared to FY2009.  In contrast, the previous three years (FY2007-09) had an estimated average increase in lodging costs of 6.8%.   In FY2010, there are about 400 areas that have per diem rates higher than the standard CONUS rate.

The standard Continental U.S. (CONUS) per diem rate for lodging, which applies to destinations that are not specifically listed on the FY2010 per diem rate schedule, remains the same as last year at $70 per night.  GSA reviews the CONUS rate every three years and continues to use market data provided by Smith Travel Research to establish per diem rates.  The last adjustment was for fiscal year 2008, which increased the lodging rate that had been in effect since 2005.

GSA noted in its Sept. 24 release that besides updating the lodging rates for all nonstandard areas, the meals and incidental expenses (M&IE) will increase by $7 for each of the six M&IE tiers, resulting in a $5 increase for meals and a $2 increase (from $3 to $5) for incidental expenses.

The complete FY2010 rates can be viewed on the Internet at the GSA’s per diem Website, www.gsa.gov/perdiem.

Hospitality franchiser Choice Hotels has tasked text analytics software provider Clarabridge with collecting and processing nearly 1 million customer comments in order to improve service and customer lifetime value.

The hotel chain, which includes brands such as Comfort Inn, MainStay Suites and Econo Lodge, has renewed its emphasis on the quality of rooms across brands. Mark Weiner, VP of customer care and reservations at Choice Hotels, said he expects that initiative to result in better customer-retention rates.

“We get a lot of unstructured feedback from our guests, and increasingly we saw the need for detailed analytics in order to make sense of all of it,” he said.

The hotel franchiser began testing the software this summer.

“Clarabridge’s Content Mining Platform allows our representatives to tailor the solution to an individual customer,” he said. “If the same hotel has had a number of room-cleanliness complaints, the rep can solve the problem for the guest right away, rather than referring them back to hotel staff.”

Based on initial testing of the software, the company may extend its use across other programs, including its preferred guest loyalty program. Weiner said that customer satisfaction went from 21% to 70% from this March to September, according to internal surveys, and call center times have decreased.

“We’ve gotten much faster at addressing customer complaints since our representatives can call up the relevant information that they need right away,” he said.

The developer of the stalled Fontainebleau resort in Las Vegas plans to appeal two key legal rulings in its lawsuit against banks over their decision to stop funding for the project.

In a ruling that appeared to signal the end of Fontainebleau Las Vegas LLC’s development of the resort, U.S. District Judge Alan Gold in Miami on Aug. 26 sided with Bank of America and other Fontainebleau revolving-loan lenders in the banks’ interpretation of the credit contract at issue.

Gold at that time rejected Fontainebleau’s motion for partial summary judgment and an order that the banks immediately turn over $656 million in planned funding needed to restart construction of the project.

A separate group of term lenders, part of a $1 billion term-loan group that had been supportive of Fontainebleau, later cited that ruling when it moved for Fontainebleau’s Chapter 11 bankruptcy case be converted to a Chapter 7 liquidation. The bankruptcy judge instead appointed an examiner to supervise the sale of the project.

But in court papers filed Friday, Fontainebleau said it wants to appeal Gold’s ruling to the 11th U.S. Circuit Court of Appeals. It also wants to appeal his ruling moving the lawsuit from the bankruptcy court to U.S. District Court.

Mediation in the lawsuit, in the meantime, has been unsuccessful and the parties reached an impasse, court records show.

“The court’s orders raise issues of law concerning which there are substantial grounds for difference of opinion,” attorneys for Fontainebleau said in Friday’s filing.

They said the issues it wants to appeal should be decided as soon as possible, not at the conclusion of the lawsuit, because of time constraints facing the bankrupt company.

Fontainebleau said the lawsuit remains “an important part of its efforts to reorganize.”

“Deferring an appeal until the conclusion of these proceedings would undermine those efforts, and — even if successful — would almost certainly come too late to be of any real assistance,” the company said in its filing.

The casino resort developer also said resolution of the issues it wants to appeal would help resolve four other lawsuits related to the banks halting funding this spring after, they said, Fontainebleau defaulted on the loan agreement because of cost overruns and other problems.

Two of those lawsuits pit certain term lenders against the revolver lenders; a third suit was filed by certain term lenders against Fontainebleau; and a fourth was filed by revolving lender Deutsche Bank against Fontainebleau chief Jeffrey Soffer over loan guarantees.

Fontainebleau has borrowed $1.675 billion against the unfinished project — once valued at $2.9 billion — and estimates to complete it have ranged from $1.5 billion to $2 billion.

Besides dealing with lenders’ claims against the 63-story, 3,815-room resort, Fontainebleau last reported that as of Aug. 17, $615 million of contractor liens had been filed in the case.