I came across two data sources over the past couple of days that show interesting trends across the USA for airport flight reductions and average hotel rates for dozens of major cities around the USA.

This past month I have been seeing articles about the impact of airport flight cutbacks on the hotel industry.  An article I read estimated every 10% reduction in flights creates a 3.9% reduction in hotel demand for the area.  I imagined I could look at the data I saw on flight cutbacks and hotel occupancy and have some revelation, but it didn’t turn out that way.

Last Friday, USA Today produced a graphic showing the reduction in percentage of passenger seats for flights at 300 airports in the USA based on November 2008 schedules compared to November 2007.  My initial shock was to see my local airport in Monterey (MRY) is listed with 24.5% fewer seats.  And yet, I just searched for tickets from Monterey to Las Vegas and the fare is $100 all-in roundtrip, the lowest fare I’ve ever seen to Las Vegas from Monterey with our new airline service on Allegiant Airlines.

 

 

Smith Travel Research tracks US lodging industry revenue and publishes weekly reports.  The data for June indicates a significant slowdown in hotel occupancy along with a continued increase in average room rates.  The summer months of 2008 are seeing drops from summer 2007.  June 2008 hotel occupancy dropped 4.5% compared to June 2007 while the average room rate climbed 3.2% over the past year.

The good news for consumers is the average room rate increases are slowing in most markets as we progress through 2008.  My observation for the San Francisco Bay area is some of the lowest rates I have seen in a couple of years occasionally pop up over the past few months at several upper upscale hotels I track.  This is even as San Francisco has one of the strongest hotel markets in the USA due to high occupancy, high rate increases, and increased international tourism.  The Le Meridien Hotel was $139/night over the July 4^th when usual rates are $200+ for this hotel and I have seen the rates surpass $500 during some weeks. 

 

 

Impact of Several Years of High Hotel Room Rate Increases 

The budget traveler has seen average USA hotel rates rise 25%, and in some hotel markets like Hawaii even up 50% over the past 4 years.  Has your salary increased 50% in that time frame?  If not, then you are feeling the economic pressures on your travel lifestyle.

Assume Hilton, Starwood or Hyatt top elite status is achieved on hotel stays for a frequent guest with 30 to 40 nights per year in hotels.

 

2004 Full service hotels in USA $117 ADR (+12.5% tax) = $131.63

 

2005 +5.5% = $138.87

2006 +7.4% = $149.15

2007 +5.9% = $157.95

2008 +4.4% = $164.90

 

The average daily rate for a full-scale hotel in 2008 is $33.27 more than 2004 (a 25% increase in 4 years.) 

30 nights for top elite status will cost $1,000 more in 2008 than 2004 if you are in the average rate market.  New York, Miami, San Francisco, and Phoenix will cost you even more.

 

2004 the cost of 30 hotel nights at full service hotels averaged about $4,000 after taxes ($3,949).

 

2008 the cost has increased to $5,000 for 30 nights or your $4,000 budget that bought 30 nights 4 years ago now only buys 24 hotel nights.  Think one less week vacation and not enough nights for top elite frequent guest status.

 

Top 10 Hot Hotel Markets in USA

Source: TWR Hotel Outlook Summer 2008, Cornell University, School of Hotel Administration

Average Daily Rate (ADR) annual increase over 7% from First Quarter 2007 to First Quarter 2008

1.      Charlotte, NC  9.6%

2.      Houston 9.1%

3.      San Francisco, 8.8%

4.      New York City 8.7%

5.      Fort Worth, TX 8.3%

6.      Columbia, SC 7.9%

7.      Richmond, VA 7.6%

8.      Cincinnati, OH 7.1%

9.      Portland, OR 7.1%

10. Philadelphia 7.0%

 

11 Cool Full-Service Hotel Markets

ADR annual increase less than 2% from First Quarter 2007 to First Quarter 2008

1.      Trenton, NJ -3.1%

2.      Fort Lauderdale, FL -1.5%

3.      Tucson, AZ -1.3%

4.      New Orleans, LA -0.8%

5.      Cleveland, OH 0.4%

6.      San Diego, CA 0.4%

7.      Miami, FL 1.0%  (already overpriced at #1 upscale ADR in USA in 2007)

8.      Columbus, OH 1.1%

9.      Long Island, NY 1.2%

10. Baltimore, MD 1.3%

11. Atlanta, GA 1.6%

 

 

10 Expensive Cities for Full Service Hotels

(Room Rate Percentage increase from First Quarter 2007 to First Quarter 2008)

 

1.      West Palm Beach, FL $265.18  (4.9%)

2.      New York City $254.71 (8.7%)

3.      Miami, FL $249.53  (1.0%)

4.      Phoenix, AZ $203.10  (4.8%)

5.      Fort Lauderdale, FL $195.38  (-1.5%)

6.      Honolulu, HI $186.86  (6.0%)

7.      Washington, DC $175.33  (2.2%)

8.      San Francisco, CA $174.65  (8.8%)

9.      San Diego, CA $171.67  (0.4%)

10. Los Angeles, CA $161.91 (5.1%)

 

10 Low-Cost Cities for Full Service Hotels

(Room Rate Percentage increase from First Quarter 2007 to First Quarter 2008)

 

1.      Dayton, OH $83.87 (2.1%)

2.      Albuquerque, NM  $96.38  (5.6%)

3.      St. Louis, MO  $101.45  (2.2%)

4.      Columbia, SC $101.63  (7.9%)

5.      Omaha, NE  $102.94 (5.6%)

6.      Cleveland, OH $104.43  (0.4%)

7.      Richmond, VA $107.02  (7.6%)

8.      Cincinnati, OH $107.41 (7.1%)

9.      Kansas City, MO $108.34  (4.9%)

10. Albany, NY $110.10  (2.6%)

 

 

 

 

 

Concierge Traveler – Hotel and Travel News  

I have noticed trends in the hotel industry stories over the past couple of weeks since not posting much while traveling around in San Francisco and Denver.  Here is a selection of interesting travel industry articles I have seen lately.

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I have been writing much of this year on the “perfect storm” of currency exchange economics, perception of declining wealth among Americans and its impact on international travel, and the hotel revenue management teams insisting on maintaining historically record high room rates. 

My conclusion is the trifecta will decrease the room rate inflation for hotels in the U.S. but I anticipate wildly swinging hotel rates for the rest of 2008.  Expect exorbitantly high room rates in major city business center hotels during busy work weeks and peak travel conferences when the hotels will strive for enhanced revenue. Anticipate more frequent hotel room bargain rates during extreme lulls in business travel to induce leisure travel stays. 

The leisure traveler will see great hotel rate opportunities and an increased probability of getting a high value-added incentive like a complimentary room upgrade, free parking, restaurant meals and/or bar drinks, and quite possibly a high added-value rebate through hotel loyalty program bonus points towards a future free night redemption.  Unlike airline frequent flyer miles, hotel programs make room redemption using frequent guest points a fairly simple process.

Rising fuel costs balanced by staff reductions seems to be the business practice for keeping profits rising in the face of declining occupancy and pressure on room rate rises.  Europe is seeing a widespread decline in the American tourist market on the order of 10-15% fewer visitors for places like Ireland this season than last year so far.  The British pound has lost nearly as much value against the Euro in the past year as the dollar – around 15%.  A survey of UK  travelers shows 13% cutting back on travel plans due to weaker value of the British pound in past year.  British tourists are finding less value in travel to Ireland.  British tourists are increasingly favoring Turkey to escape the Euro zone for a beach getaway as even the rising cost of a holiday in Spain pushes bargains aside.

The indicators are that major cities are faring better than outlying regions for tourism such as Budapest.  London, Amsterdam, Paris, and Berlin are still strong attractions for the tourist and business conference market.  Ireland and Scotland are seeing summer tourist fortunes decline.  Still there are analysts saying “there are no decline in business hotels for 2008” and the scenario is not so bad as hotels continue to profit, just to a lesser amount than in previous years and the cut rate bargain hotel rooms may not be coming to your town anytime soon.

Now I am waiting to see the loyalty program response to initiate more interest in hotel travel for the second half of the summer season.  The incentives are nowhere near the high value hotel frequent guest promotions of last fall, winter, and spring.

Expedia has dropped 48% in stock value since October 2007 and the recent announcement of the purchase of Venere.com did not seem favorable to the market.  For the consumer the deal just might be upbeat.  Venere.com has accommodation relationships with nearly 30,000 European and US properties and the acquisition will add more than 10,000 new hotels in Europe, Africa, and the Middle East to Expedia’s reservation system.

More interesting to me is the acquisition of VirtualTourist.com by TripAdvisor.com.  Expedia is moving along as the major player in the hotel travel review and travel media market and now adds a vibrant social media component to the Expedia portfolio.

Hotel stocks and travel stocks in general are taking a hit on Wall Street with many at 52-week lows.  Marriott reports profits are declining in the past few months by a substantial margin of 24%.  Analysts predict that reduced airline capacity may exacerbate the problem of lower hotel occupancy for geographically isolated U.S. cities like Denver, Colorado to an extent larger than the post-September 11 travel slump.

 

Don’t think twice, it’s alright

            – TripAdvisor’s top ten places to show your skin.

Don’t think twice, it’s not alright to slip out of that tan line clothing in Dubai. 

-         And a tourist asks can you still kiss in public on a Dubai beach? 

 

Hotel Website Redesign and Brand Recognition

HotelChatter.com reaction to the Starwood Hotels’  Luxury Collection website redesign and recent articles on InterContinental Hotels media library, Hilton’s Conrad and Waldorf-Astoria brands are all pieces pushing brand recognition with website enhancements to distinguish these upscale and luxury brands within the corporate hotel family. The St. Regis Fort Lauderdale is being stripped of its brand name affiliation with Starwood Hotels.

Boston and Las Vegas  Coast-to-Cost Blues

Boston hotels predict harder times ahead as fuel costs and operating expense increases cut into diminishing profits.  The hotel rates in Las Vegas are reported to be at their lowest room rates since 2003 in this LA Times blog.

 

 

 

 

The forecast for hotels in 2008 in the USA is a rise in rates (about 5% depending on location), along with a decline in occupancy (1- 4% depending on location).

As personal income sees limited growth in 2008, the projections for travelers staying in hotels decline. PKF Hospitality Research projects 115,000 rooms to be added to USA hotel room supply in 2008. The projected trend is for new hotel openings to decline from 2010 to 2012.

The interesting news to me as a loyalty traveler is the room rate increase estimated at 4.7% for 2008 and nearly twice the 2.7% estimated rate of inflation for 2008 and more than 1% over the long-term annual room rate increases.

Do I have this sorted out correctly?

The hotel industry is about to see a glut in hotel rooms as more than 100,000 rooms are added to US inventory in 2008. There is an anticipated decline in occupancy overall due to the extra hotel rooms hitting the market, and room rates are expected to rise at twice the rate of inflation in 2008.

“After analyzing historic periods of economic recession and rising inflation, PKF-HR found that hotel managers have been able to pass along inflationary increases to their guests,” – Mark Woodworth, President of PKF Hospitality Research.

“PKF-HR forecasts that a 5.8 percent increase in average daily room rates will offset a 3.8 percent decline in occupancy within the Luxury segment.”

Where is the logic in these trends? It certainly isn’t consumer-friendly logic.

Which brings me to the point of timing is everything when looking for a hotel bargain. I like to use San Francisco as a case study example due to the large tourism segment for leisure travelers and conference attendees.

Last week the American Academy of Orthopedic Surgeons was in the city and the doctors were easily identifiable by the AAOS lanyard hanging around the suit collar. 30,000 conventioneers in town and hotel prices through the roof. Starwood’s Le Meridien San Francisco was one of the few hotels in their portfolio still available at the end of the week — for $500+ night. This is for a hotel that was going for $129 for a couple of weeks back in December 2007.

Travel planning on a budget requires coordinating flight plans with hotel plans. I scored a great summer airfare to Iceland a few years back. I paid under $100 all-in roundtrip and I was loving life at the great deal I purchased only to suffer sticker shock at the cost of hotels in Reykjavik when $200/night looked like the norm.

And this leads me back to my last blog entry about St. Regis hotels appearing on SkyAuction.com. The bright spot for travelers being squeezed by inflation from all sides is the trend towards shifting hotel inventory back to the auction and prepaid sites like Hotwire, Priceline, SkyAuction, and LuxuryLink.

The hotels can sit half-empty or some inventory can be moved through the prepaid channels. This can mean some incredible deals for the watchful traveler.

This loyalty traveler has no qualms in passing on the points and upgrade if a room can be purchased for $200/night less than otherwise available.

I do have another suggestion for hotel loyalty programs to appease customers who may jump ship in the face of escalating prices and tightening travel budgets.

InterContinental Hotels Group PointBreaks are an incredible deal for a room at the rate of 5,000 points per night. The available properties change frequently and limited room inventory is available for these great loyalty program awards using hotel points.

Starwood expanded their Cash & Points award offers to cover most hotels around the world.

The two offers above are limited and controlled by the hotel and loyalty program, but when a traveler is able to get one of these deals using hotel points the savings can often be more than $100/night.

Hilton and Marriott can expand their PointStretcher and PointSaver opportunities to cover more hotels.
Hilton’s PointStretcher program has been weak due to limited hotel participation and limited dates for PointStretcher awards for several years now.

Hyatt can continue to offer some of the best loyalty program promotions available and they might not need to introduce reduced award offers, but I would like to see something from that chain to offer reduced cost awards using hotel points for rooms.

The hotel loyalty programs could be key to keeping hotel occupancy from suffering a more severe decline as prices continue to outpace inflation (unless the industry escalates inventory turned over to third-party online travel agencies like Priceline and SkyAuction).

Buy gas for work or buy gas for vacation? Pay for a hotel room or pay the mortgage?
The consumer is being squeezed from all sides in this economy and if the hotel industry continues to squeeze us for more profits, the money just might dry up.

There was an analyst in Salt Lake City on CNBC this morning, Jan 11, 7:10am (PST). He was predicting a 16,000-20,000 point DOW by year end 2008. He also says all the sales numbers look good for consumer spending. I bring this up because I was just reading the Jan 11, New York Times article by Michael Barbaro, “Poor December at Retailers; Most Report Drops in Sales”.

Target Stores sales dropped 5% in December 2007 compared to what was sold in December 2006. Nordstrom dropped 4%, Kohl’s dropped 11.4%. Only WalMart raised sales over 2006 levels by 2.7%. The size of WalMart helped raise sales nationwide almost 1%.
Yet, the good retail news was electronics sales increased 2.2% in December.

I know from my experience that when money looked to be getting tight (bills are more than income for foreseeable future), I always made sure we updated the TV or computer electronics to make the increased time spent at home more pleasurable.

TVs and Computers and Video Games keep a poor population occupied. We are quite isolated in our society. Travel is one of the great activities of socializing in America.

One TV analyst this morning was saying the country is great.

When I am at Costco and I see all the $1,900 HDTVs driving out of the parking lot, I tend to agree that Americans are doing well. At the same time, people in clothing retail are watching their livelihoods suffer while the electronics store employees are in the high frequency sales. In 2008, technology improves too rapidly for anyone to desire used electronics, whereas, some of the best clothes values are well-made used clothes with minimal wear.

I read an article yesterday suggesting that as hotel rates increase 5%+ over 2008 while room occupancy declines, the rate increases will primarily target business and conference guests. In my opinion, the trend I see here in San Francisco is one of rapidly increasing hotel rates during high business activity days. Rates can easily be $300 to $400 per night at most of the 4-diamond hotels in San Francisco during a conference period. In October, I went to the dentist and the hygienist told me she had been at the Dental Conference in San Francisco the week before. That explained why all the rates were $300 minimum at all the major hotels when I was trying to book a room.

The good news for the leisure traveler is that for at least 12 nights from November 15 to December 30, 2007, hotel rates in San Francisco at the major 4-diamond and 5-diamond hotels were the lowest or close to the lowest rates in the past three years at several downtown city Starwood hotels. Le Meridien San Francisco and Westin Market had $129 rates. Westin St. Francis had $99 rates. St. Regis San Francisco was available for under $300 per night. Other hotel chains also had lower than average rates during the November-December season.
San Francisco is in the top 5 markets in the world for the number of occupied hotel rooms at major upscale and luxury hotels. I wonder if the room rate trend in 2008 will continue to be a rate hike focused on business travelers on expense budgets with periodic significant rate discounts available to leisure travelers during times of low business demand.

Room with a View

Westin St. Francis, San Francisco

$100/night 22nd Floor Corner Tower Room

November 28, 2007

I am all for discount rates. The American leisure traveler needs a break as price inflation squeezes the budget from every direction (except electronics which likely explains the growth in sales).

If the economy is doing fine and the DOW is going to be 16,000 points by end 2008 as the financial analyst on CNBC was saying this morning, then the companies should be sharing the wealth with the hotel corporations by paying the extraordinarily high room rates.

I just hope that trickle-down Reaganomics will carry through for the leisure hotel traveler. Hotel guests will suffer exorbitant rates if you must travel and be at a specific place on a certain day for business and you coincide with high business activity. The small business, independent traveler like me will suffer from these rates during unavoidable hotel stays. I just hope the large urban hotels will feel enough financial profitability from their business activity to cut a rate break for the leisure travelers. Starwood made a great show of this rate discount strategy in the holiday season for their San Francisco hotels. San Francisco is too beautiful a city for the hotels to price out leisure guests.

Many leisure travelers in 2008 will make choices if the economy is not looking so sky high bright.

Forego the clothes this season and get a new computer?
The computer has become essential for communication and conducting business and planning that life-saving vacation.

Forego the 4-diamond hotel in downtown city at $289 a night this trip?
A 3-diamond independent hotel for a bargain $109 a night, twelve blocks from downtown is acceptable to a large portion of travelers who will not place so high a value ($200 a night after hotel tax) on hotel loyalty to a major corporate chain asking $300 per night when the hotel is only 70% occupied.

The hotel budget is often the biggest variable cost in travel and the budget-downsizing leisure traveler is likely to realize the greatest travel savings comes from reducing the hotel budget. $300 per night is removing the vast majority of travelers from even considering staying at urban chain hotels.

And let’s just hope the sky is not falling. The leisure traveler in 2008 might just have a change in lifestyle and stay at home with the MTV, computer, and video games.

[side note: I originally wrote this article 6 days ago on Jan 11, 2008, and since that time Starwood stock has dropped over 10% and there is widespread concern that hotel stocks are going to continue to be hit hard as hotel travel declines in the recession of 2008.]