What is in this article?:
The Year Ahead
Average annual growth in(revenue per available room) over the past 20 years is 4.2 percent. In 2008, it was -2 percent; in 2009, it was -16.6 percent. “That’s the largest drop of all time,” said Michael Dominguez, vice president, global sales, Loews Hotels & Resorts, during a recent presentation.
In two years, the hotel industry lost $22 billion in profits. In the past, hotels in need of cash could refinance based on equity. “Now there is no equity,” he said, “and there are a lot of banks owning hotels.”
In 2007, Dominguez said, room rates finally had risen to match the rise in the consumer price index. Then came 2008, and rates tanked as demand disappeared.
“Pricing is coming back now, mainly because there is no new supply and demand is going up,” said Dominguez, referring specifically to the luxury and upper-upscale lodging segments, where the vast majority of meetings are booked. But it’s “a recovery of two coasts.” The East Coast has recovered; the West Coast is waiting for Las Vegas. While supply was stagnant in most of the country during the downturn, the West Coast is where the bulk of new inventory was opened in 2010. Its demand recovery (to 2007 levels) is not predicted to occur until 2014.
Overall, though, signs are positive for meeting hotels. Consider: July 2011 marked the highest number of rooms booked ever in a single month; 70 percent of demand is in the luxury and upper upscale market; and there’s no new inventory coming on line in the next three years. The good news for hotels, however, Dominguez notes, means planners will find themselves in the “gap phase,” where they will go through their first experience having to pay a higher rate than they’ve gotten used to and will have to explain that to their organizations.
Skittish companies are one challenge to the comeback of meetings. Here are the others Dominguez sees in 2012:
The cost of fuel is killing the meetings industry, he says. Companies have to spend more for airfare, so they have less to spend at hotels. This is a huge challenge for the airlines, whose No. 1 expense, jet fuel, has tripled in price in 10 years.
“Only time will ease the uncertainty of corporate America and consumers. The question is, how much time? Forty percent of those unemployed today have been unemployed for 1.5 years. We have seen good news recently but we are a long way off from 2007 employment numbers.”
3. Stock Market
It’s a rollercoaster. And although the gyrations in the stock market are all about Europe, not about the U.S., it will continue to have an impact on the meetings industry.
Consider the impending IPOs of Groupon and Facebook. “Nasdaq’s current upward trend is similar to the 1990s tech bubble,” Dominguez said. “There is this exuberance over companies that—in the case of Groupon—don’t even make money.”
We are still waiting for the recovery of the housing market. The most recent data from the Standard & Poor’s Case-Shiller index (which tracks single-family house prices in 20 metropolitan areas) was released in early February and showed that November 2011 home prices were 3.7 percent lower than one year earlier.