These
days, panic-stricken hoteliers are constantly fretting over room rate.
It’s the biggest question these days in hospitality, as rate integrity
has eroded along with occupancy. No longer are hotels in the driver’s
seat when determining the cost for a hotel room; it seems as if the
consumer is in charge now. 

The problem, of course, is multi-faceted. The recession has caused many
companies to pull back on corporate spending. They’re also afraid to
hold meetings for fear of media reprisal. It’s caused knee-jerk
reaction among hoteliers to fight it out market to market. The end
result has been an attempt to cut rate to steal market share, but it’s
only caused more headaches for hotels, many of which are overleveraged
with debt and need to fill rooms at any cost to make debt service
payments.

What a mess! Fortunately, all indications point to the worst being
over. Either way, however, hoteliers are unwilling to drop their
defensive postures until there are stronger signs their competition
won’t undercut them with lower rates. 

So the big question on everyone’s minds last week at The Lodging
Conference at the plush Arizona Biltmore Resort and Spa in Phoenix, AZ,
was, “When will room rate return?”

According to Steve Swope, Chairman and CEO of Rubicon, the key to
understanding where room rates are headed is through examining the pace
at which rooms are booked in any given four-week time period. And, for
the first time in a year and a half, it looks as if future bookings are
on the upswing.

“We are starting to see positive pace for the first time in a long
time,” said Swope. “Any glimmer of excitement is the pace number has
finally swung up. And that is good news. However, it is going to be a
long slog to get rates back up. But the first sign is to see rates stop
falling and that is where we are today.”

Swope added that there has been an acceleration of demand during the
last four weeks for the future 12 months. In fact, it’s up pace 3.3
percent year over year, and 18 of 25 top markets are now in positive
territory.

Andrew Stegen, General Manager of the host hotel, the Arizona Biltmore,
said he sees prospects are up 300 percent from this time last year.
It’s a sure sign things are on the mend.

Larry Shupnick, Senior Vice President Development and Acquisitions with
Interstate Hotels and Resorts, agrees that it looks like the profit
needle will soon start moving in the right direction. “I think that the
market will turn a little bit in 2010. Probably by the second or third
quarter we will see the market pick back up in RevPAR,” said Shupnick.

R. Mark Woodworth, President of PKF Hospitality Research, agreed that
it seems as if the market has bottomed out. “I think things are going
to start looking better as we move forward,” he said, noting that he
thinks RevPAR will turn positive later in 2010. “From the bottom line
there will be another year of losses in 2010, but we see some very
attractive year over year increases in 2011.”

Woodworth said some of the problem is going to be a surge of new
openings of projects approved at the end of the last cycle, which will
continue to give the industry some grief for the next quarter or two.

According to Swope, the booking decline was first seen around February
2008 for forward bookings. At that time pace started slipping as much
as 20 – 30 percent. And it wasn’t until this past spring that the
booking pace stopped freefalling and began to flatten out. “We kind of
hit bottom in mid-May. It’s undulated a little bit since then,” said
Swope.

When this year is complete Swope said he expects transient demand to be
down about five percent, while group demand should be down about 12
percent.

One problem that will continue to haunt hoteliers is companies renewing
room contracts for the coming year and buying less room nights for a
lower price per night. In addition, Swope said the customer is many
times abandoning the negotiated rate for a conference and going with an
online travel agency to get a lower rate.

By: Glenn Haussman