The hotel business has collided head-on with the bad economy and the tight credit market.
Hotel revenue is down sharply. Big new projects, planned in the boom days, are either sitting unfinished or left on the drawing boards. And some high-end hotel owners now face an unhappy situation: how much can they cut prices to fill their rooms before they damage their hotels' luxury cachet?
Numbers from Smith Travel Research, the leading hotel research company, show just how tough times have become for all hotels. For the week of Jan. 11 to 17, the average revenue per available room – the standard measure of hotel performance – fell 16.4 percent over the comparable week in January 2008 in hotels in the United States. Average occupancy fell 12.9 percent, and average daily room rates declined 4 percent.
The figures for luxury hotels were even bleaker. Occupancy rates fell 24.4 percent in the week that ended Jan. 10 compared with the first week of January 2008, Smith Travel Research found. Average daily rates fell 8.9 percent.
Many of the same forces now hitting the bottom lines of luxury hotels have affected other segments of the luxury market – from top-end department stores to private jets – as the rich feel the pain of the stock market collapse and cut back on spending. Luxury hotels are heavily dependent on high-end business travel, corporate meetings and international visitors – all of which have fallen.
Even with pressure to generate revenue, managers of hotels in all price categories except the lowest generally dislike overt discounts, fearing that customers will then insist on the bargains when good times return.
The luxury hotels are particularly worried about losing business travelers, as many companies tighten travel spending policies.
Some business travelers who were formerly authorized to stay at five-star hotels are now restricted to four-stars (which include so-called big-box urban hotels like Sheraton or Hilton). And big-box hotels are also dropping prices, adding to their lure.
Higher-end hotels are also now including in the room price services they used to charge extra for, like valet parking, Internet service and spa use. Some are even throwing in a free lunch or dinner in the hotel restaurant.
In every price range, hotels are struggling to cut costs without damaging the reputation of their brand. Midlevel hotels are trimming expenses, like reducing the amount of fresh fruit available in free breakfast buffets. Luxury hotels are looking at expenditures like staffing levels, flowers and bathroom amenities.
Even as existing hotels struggle in these tough times, many hotel projects that were financed and put into development years ago are languishing. The number of hotel rooms under construction in the top 26 markets was down 19.7 percent at the end of 2008 compared with the end of 2007, Smith Travel Research said. Across the country, even hotel projects that are well under way, including as the $4.8 billion Echelon resort complex on the Las Vegas Strip, are sitting starkly idle, awaiting a better economy.
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