Increase in demand, profits allows operators options

Hotel & Motel Management, April 4, 2005 by Stacey Mieyal Higgins

Atlanta -- Recent reports from PKF Hospitality Research predict that 2005 will be a banner year, with a 14.1-percent profit increase for U.S. hotels.

The information is based on PKF's "Trends in the Hotel Industry" survey of hotel financial statements.

Maximizing room rate will be the key to success.

"Market fundamentals have recovered to the point that the typical hotel operator is comfortably beginning to increase room rate," said Mark Woodworth, executive managing director of PKF-HR. "When room-rate growth begins to accelerate, profits begin to accelerate."

Room rates are expected to increase 5.3 percent this year.

"Everyone seems to be a lot more bullish," said Roger Aufieri, president & c.o.o. of the hospitality management division of White Lodging Services Corp. in Merrillville, Ind. "We're seeing a lot of our hotels and our competitors pushing rate more now that occupancy is stabilizing.

"Most markets will see rates firm up and that's always very profitable," he said.

Aufieri, who is on the Fairfield Inn by Marriott Franchise Advisory Council, said new brand standards are needed to compete. He used upgraded breakfasts in the select service segment as an example.

"You lose share by not doing it," he said. "It becomes an expected amenity."

White Lodging's portfolio consists of 90 hotels and 12,590 guestrooms.

The 66-room The Wave Hotel in Miami Beach, Fla., is enjoying increased demand since the FedEx Orange Bowl in January, according to Bob Sassani, g.m.

"Even at the end of '04 when the trade journals were talking about probable improvement, I was a little skeptical," Sassani said. "But over the first quarter, I will see improvements over low- to mid-20 [percent], no question."

Hotels are seeing increases in group and convention business, Woodworth said.

"This not only helps occupancies, but those types of customers tend to buy more than just a room," he said.

The increasing group business bodes well for full-service hotels in particular, said Kit Pappas, g.m. of the 362-room Renaissance Chicago O'Hare Hotel, which opened in February.

"We're seeing solid demand in our restaurants and bars," he said.

The hotel's high-speed Internet access bundled with local and long distance calls also has been successful, Pappas said.

Raul Leal, president of Miami-based Tecton Hospitality, a management firm which operates The Wave Hotel, said the increase in demand is allowing the company to increase prices in all areas.

Tecton's portfolio includes 14 hotels with 1,578 rooms.

"We're always taking a look at our pricing, always being competitive and analyzing our pricing structure in all areas of the hotel and making adjustments," he said.

"The company hired a revenue manager at the corporate level for some of those long- range goals," Sassani said. "Most Internet traffic is short term. We want to turn it into longer term by offering specials and get a customer base on the books."

Looking at revenue management six months out is possible because of the current demand, Sassani said.

"The revenue manager helps us forecast our cash flow and staffing needs," he said. "It plays into controlling our expenses and being able to give our owner more informed decisions about capital requests."

Tecton Hospitality's checkbook accounting system has failsafes in place for good and bad times, Sassani said. The accounting is analyzed line by line once a week by all of the hotel's managers.

"If [trends in booking] looked softer or if it looked like we were going to exceed them or if we were not so confident in a future date, maybe we would put some surplus on the shelf with an amenity," he said. "We get more frugal even when times are good so we have a little bit of cash to lay back on."

Maintaining balance

White Lodging, which is gearing up to open a new convention hotel, the 617-room Louisville (Ky.) Marriott Downtown, is careful about adding rooms.

"During the downturn, group business was much weaker," Aufieri said. "Now everyone wants group, but you don't want to overbuild your space. ... A lot of centers are expanding. When we build, we look for that market over the long term."

Leal said the Miami market is seeing demand increases.

"We're off to a great start in the first two months, and we don't expect it to slow down," he said.

Major lodging markets aren't going to see major supply growth, Woodworth said.

shiggins@advanstar.com