The crystal balls were rolling at the Hotel Sales & Marketing Association International — New York University Industry Strategy Conference in New York City in late September, with a panel of hotel experts offering a situation analysis as well as a glimpse into the future of the hospitality industry.
The good news, according to Betsy O'Rouke, senior vice president, marketing, Travel Industry Association of America, is that hotel occupancy has bottomed out, and there is nowhere else to go but up. “Business travel will improve in '04,” she said, meaning that face-to-face meetings should see some improvement, too. Quoting PricewaterhouseCoopers' predictions, she said that revenue per available room night is expected to increase by 4.9 percent in 2004, followed by a 3.4 percent rise in 2005.
Demand is also expected to rise by 4 percent next year, but she said that “business travel is forever changed, thanks to the Enrons of the world. The perk of being a business traveler has diminished.”
Mark Lomanno, president, Smith Travel Research, another presenter, said that average daily rate is “starting to come back.” Demand isn't all that bad, he added, but as long as new hotels are being built, “supply is always an issue.” In other words, even though hotel occupancy in 2002 was the lowest it has been in 31 years, profits were higher in 2002 than they were in 1996. So that's good news from the hoteliers' perspective. But is the buyers' market here to stay?
Lomanno is a proponent of hotels maintaining or increasing rates rather than improving occupancy through discounting. “If room rates were the same now as they were in 2000, we would be more profitable, even though occupancy is lower,” he explained.
Still, planners are enjoying the lower rates, and despite increasing numbers of meeting attendees going outside the negotiated room block, the meeting business is very profitable for the hotel industry.
Bjorn Hanson, PhD, global hospitality industry managing partner, Pricewaterhouse Coopers LLP, who said hotel occupancy in 2002 reached its lowest point in 31 years, spoke of the importance of the meeting market to hotels. “The meetings business is a disproportionate amount of hotel business,” said Hanson. “For most major cities, it is the best market in terms of share of demand and share of revenue.” In fact, in 2002, according to Hanson, meeting business accounted for 27 percent of profits at hotels, compared to 20 percent in 2000. Planners would therefore be wise to shop for meeting destinations by city if rate is a priority. Certain cities — such as New York — that have been hurt because business travel and international business have been in steep decline can provide good value over the right dates.