Officials see hotel recovery in 2002

Real Estate Weekly, Dec 26, 2001 by Elaine Misonznik

According to the experts at Jones Lang LaSalle's "Handling a Hostile Hotel Environment" conference Dec. 13 the hotel market should improve sometime in the second quarter of 2002 due to limited supply and relatively stable pricing rates.

Operators such as Robert E. Parsons, CFO of Host Marriott Corporation, pointed out that hotel occupancy rates were declining steadily even before Sept. 11, representing just another turn in the business cycle. If hotel owners will be able to withstand the temptation of cutting down prices indiscriminately and forcing their competitors to compete with even lower rates, the situation will significantly improve by next year.

"What really impacts our profitability is the supply side and we have an extremely favorable supply situation right now," Parsons said. "Our best estimate is that about a third of the current downturn is the residual result of Sept. 11, the rest was caused by the slowing economy. If the economy picks up in the second quarter of 2002, that is really the key."

At the same time, Jon E. Bortz, chairman and CEO of LaSalle Hotel Properties, was concerned that hotels had been set back in revenue several years as a result of the dramatic tourism cutback which occurred in the weeks immediately following the terrorist attacks. "We are a little more negative (than our colleagues)," he said. "There is a lot of pricing pressure in the market right now. We are very concerned about that -- it's hard to get money back in the market and we've already been set back about four years as an industry."

Other panelists expressed confidence that hotel owners are sufficiently experienced today to understand what kind of price breaks will inspire more visitors and what kind will simply reduce revenues.

"I think that lower rates will stimulate demand, especially for the leisure traveler," said Paul W. Whetsell, chairman and CEO of MeriStar Hotels & Results. "Our discount programs are so much more sophisticated today (than only a few years ago)."

He also offered his colleagues his observations on what kinds of service changes can save hotel operators money.

"We started closing outlets," he said. "Throughout the first quarter of 2001, we (instituted) a hiring and salary freeze. We went into light touch housekeeping. We've cut down on our purchasing of china, glassware, etc. And we've been pleased with the progress that we have made."

At the same time, Whetsell pointed out that some money-saving techniques--such as having employees serve in two functions to cut back On additional salary expenses,--might turn off visitors and result in lower occupancy rates.

In general, the mood at the conference was optimistic -- even though the panelists conceded that they have some tough times ahead, everyone believed that market conditions are favorable for a quick recovery. "We are focusing on what could be some really positive signs for the next year," said Parsons. "Our group bookings are flat with last year's, our rate is slightly up. Net reservations coming into the system are within 1% of last year's."