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Hotel Presidents, CEOs Enthusiastic About Remainder of 2010June 9, 2010 By: Chris Crowell
The opening question of the opening session from at the 32nd NYU International Hospitality Industry Investment Conference tells the story of the conference: Are you mildly, moderately or wildly enthusiastic about business and travel for the remainder of the year? The point being, all of the options are enthusiasm to some degree, and all of the presidents and CEOs on the panels fell somewhere on that spectrum.
Arne Sorenson, president and COO of Marriott International, for one, was wildly optimistic. "Look at the cycles," he said. "The years after a recession have been spectacular. In 2001, we thought for sure it would never be that bad again. 2009 was worse, so that's a big hole we're in, but that means there's a long up-ramp out."
He said it's easy to just get used to the current situation, and at the end of last year forecasters believed revenue per available room growth would be zero or below.
"Now we have the industry as a whole saying RevPAR ought to be up, and it ought to be up in the mid digits" Sorenson said. "In our last earnings report we went from a -2 to plus 2 [percent RevPAR growth] to plus 2 to plus 6. … It's such a big move in one quarter, it ought to leave people saying, 'You don't have a clue what you are doing,' but it shows how powerfully occupancy is coming back."
The reason demand is on the rise, according to David Kong, president and CEO of Best Western International, is because last year was "a perfect storm because demand went down and supply grew … and if the Internet wasn't bad enough at making price transparent, we had OTAs driving price down. … This year it seems to be a reversal in that the economy improved enough to drive demand, supply is dropping, which will hopefully allow some pricing power."
Pricing still sits as the barrier between a mild enthusiasm and a wild enthusiasm, but executives agreed that rate is showing signs of life. "Rate will come back very, very soon," Sorenson said. "In some markets, we're already seeing positive rate growth." He said the only group business "with a pulse" was acquired during the down time, which will continue to drag on the numbers, but the transient rate numbers will start to rise.
The group rates that are dragging everything down didn't concern Richard Kelleher, CEO of Pyramid Hotel Group, because the rates were set in a year ago, during the "perfect storm" when everyone was scrambling. "I believe RevPAR recovery, being primarily occupancy so far, will change as we go through the year and we'll see significant rate growth as we continue to see the pattern of compression in the markets that we've seen in the last 150 days," he said.
Jay Shah, CEO of Hersha Hospitality, agreed. "The numbers on the screen are somewhat historical," he said. "The numbers coming on the books are being displaced by bookings at higher rates and I think you'll see that change pretty dramatically."
In general, Monty Bennett, CEO of Ashford Hospitality Trust, said he has seen more group bookings so far this year. "The booking window is longer," Bennett said. "Our affiliate management companies, in the month of March, hit their booking goal for the first time in two years, and that's not because we lowered goals … so that's why we're hopeful."
Kelleher also believes the cuts that the industry made during the downturn are sustainable cuts and left most hotels with a leaner, more efficient and happier staff. "We gained more operating leverage by doing smarter and more productive things … there was cost creep that went away… we had a six to 10 percent increase in productivity even with significant drops in revenue," he said. "Today we have better employees … in a happier environment because all the dead weight moved out … and we'll gain more to the bottom line with incremental revenue."
Shah agreed that most operators did a good job of cutting costs this time around, and anecdotally, he said the more sustainable amenity cuts were indicative of a "new normal." "It's sustainable," Shah said, "So we get into this period when compression starts ... we're already seeing tremendous flow-throughs and RevPAR advancement."
Andrew Cosslett, CEO for InterContinental Hotels Group, expressed a quiet optimism for the near to mid-term, but was much more confident long term. "One of the big swingers in all this is demand is coming back and the supply forecast is changing sharply downward," he said "So here you have the opportunity … the rate tipping point is happening in some parts around the world now, it's spotty, but it's happening … as that gathers pace, it will start to move [ in the U.S.]."