Industry & Brands

3D bar graph showing downturn

When the Lodging Market Slows Down

The old adage that the lodging industry is a cyclical business seems to be proving accurate once again. Data from reliable industry sources, including Smith Travel Research, seems to indicate that after nearly 10 years of growth, the industry’s sustained period of growth is encountering a rough patch.

STR is forecasting year-over-year occupancy in the U.S. this year to be flat, the first time this has been the case in 10 years. Continued supply growth, meanwhile, is expected to have a negative impact on occupancy. Similarly, STR is expecting average daily rates to remain about the same in 2019 and then again in 2020.

For veteran managers of established hotels, industry downturns present a challenge, regardless of how many times they have been through them. Yet, like so many setbacks in business, the flip side of adversity in the short term is opportunity in the long term, if you can perceive it.

Certainly, no one solution fits all. Markets vary by size and region of the country, center-city versus suburban and by asset class. The luxury and resort segments may be more vulnerable than the upscale tier and the upscale tier more at risk than midscale. Indeed, limited-service hotels may end up benefitting, thanks to the value segment of the traveling public, especially if the national economy starts to soften as well.

Downturns give managers the opportunity to refocus their present operations in a way that may not have had the same sense of urgency in better times. They have the chance to restructure operations to ensure that the best use is being made of associates’ time and talents. It’s an opportunity, furthermore, to ensure that the quality of guest services has not suffered, despite fewer resources possibly being available.

In other words, it’s a chance to come up with creative solutions that not only add value in the downturn but become standard operating procedure going forward.

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Two Lodging CEOs Make Three Observations to Remember

panel discussion at the 40th Annual NYU International Hospitality Industry Investment Conference

Photo: NYU School of Professional Studies via Facebook // @NYUSPS

Speaking at the NYU International Hospitality Industry Investment Conference in New York last month, two of the industry’s most recognized and respected CEOs – Hilton Worldwide’s Christopher Nassetta and Marriott International’s Arne Sorenson – offered three memorable observations regarding the lodging industry.

First, growth will remain strong in the midmarket hotel segment. Second, travel from China to the U.S. will continue to grow. And 3), the U.S. would have to relax its stringent visa requirements if it is to reap the benefit of surging international tourism, driven notably by Chinese travelers.

According to Nassetta, strong growth in midmarket hotels is being fueled by the global rise in the middle class. Once people have the means to travel outside their home country, their first trips are often with tour groups that book midmarket hotels. We have seen this at our midmarket hotels in New York.

The number of Chinese outbound travelers is expected to hit 400 million a year by 2030, a significant multiple of the number just a few years ago. U.S.-based hotel brands have already rolled out customized amenities to make Chinese guests feel comfortable. Similar efforts likely will be made to cater to visitors from India and other Asian markets.

Unfortunately, U.S. delays in issuing Visas could throttle international travel to this country. It’s a politically sensitive topic because it involves national security and immigration. But, as Sorenson pointed out, foreigners who become frustrated trying to obtain U.S. visas likely will opt to visit other countries. If they do, U.S. will lose out on this lucrative market.

Despite Optimistic 2016 Forecast, Hoteliers Cannot Afford to be Complacent

Coming out of last month’s annual Lodging Conference in Phoenix, hoteliers have every reason to feel optimistic as analyst after analyst expressed confidence that the industry’s strong performance was likely to continue through 2016 into 2017 and beyond.

palm trees around pool at the Arizona Biltmore Resort & Spa

Arizona Biltmore Resort & Spa

Highly regarded Smith Travel Research, for example, reported that year-to-date through August, all U.S. key performance indicators (occupancy, ADR and RevPAR chief among them) were at all-time highs.

That certainly is excellent news and owners, and operators can rightfully congratulate themselves. Overall, they are managing revenue and expenses more effectively than ever, thanks to new methodologies and technologies.

However, the hotel business − like most others − is cyclical, and history tells us that the good times won’t last forever. Analysts are less optimistic about the overall economy.

Holiday Inn NYC – Lower East Side guest room with city view

Holiday Inn NYC – Lower East Side

Hotels in the “oil markets” of North Dakota, West Texas, Oklahoma, among others, already are struggling with oil prices depressed. New York City, traditionally the most robust hotel market in the country, is slightly off its peak.

M&R Hotel Management takes pride in the industry’s impressive results in 2015 and looks forward to an equally healthy 2016. At the same time, we encourage our managers and associates not to become complacent.

Delivering first-class guest service is at the core of our operating model, day in and day out, regardless of where we stand in the business cycle. Positive RevPAR forecasts are encouraging but won’t distract us from our mission.

Brand Standards Can Require a Balancing Act

At the heart of every hotel brand is a set of standards and procedures carefully crafted by the brand’s parent company to help ensure consistency across hundreds and even thousands of individual hotels across any number of countries.

Holiday Inn Express Staten Island guest bedroom

Photo: Holiday Inn Express Staten Island

For operators, standards define the brand’s personality, right down to the way the bed sheets are folded. For guests, standards provide the assurance of consistency. They know that when they check into a Holiday Inn Express in Staten Island, they’ll find the same services and features they enjoyed at a Holiday Inn Express hotel in Seattle.

Consistency is at the core of the “brand promise” and the value proposition. Yet individual hotels differ in age, location and type: suburban, highway, airport and city center, among others. So the major brands build in a degree of flexibility to account for these differences.

When a required room element doesn’t work or could actually be detrimental to the guest experience, the brand will consider a waiver. A hotel in New York with limited guest room space might, for example, waive a requirement for a desk and swivel chair in every room.

Comfort Inn NYC Midtown West guest bedroom

Photo: Comfort Inn Midtown West, New York, New York

Similarly, the brand will consider a waiver for other elements of its guest room furniture standard, should the size of the room present constraints. In the same spirit, brands require hotels to decorate the lobby and breakfast room seasonally but give each hotel considerable leeway as to what these decorations should be.

For the guest, the variations allow each hotel to be distinct to a degree, while still providing a reassuring consistency. Now that’s a balanced approach everyone can live with.

2015 Looks Like Another Good Year for Hotels

confetti flying through the air on New Years Eve 2015 at Times Square

Image: @timessquarenyc via Instagram

Those of us who have worked in hospitality long enough know the business is cyclical due to market forces of supply and demand. Fortunately, we have enjoyed several strong years as the economy rebounded from recession, and we are looking forward to another year of healthy growth in occupancy and rates.

The midscale segment — where most of M&R Hotel Management’s hotels operate—performed well in 2014 and is expected to continue to perform strongly this year. PKF Hospitality Research says revenue per available room, or RevPAR ̶ an indicator of profitability ̶ jumped 7.8 percent in 2014 and will grow another 5.5 percent in 2015.

Holiday Inn Staten Island front desk and waiting area with couches

Holiday Inn Staten Island

M&R has benefited from the up cycle as owners seek expert management for their new and existing hotels. We recently opened the newly constructed Holiday Inn Staten Island in our home market of New York and expanded into the Boston and Caribbean markets as operator of the Holiday Inn Express Braintree and Alegria Resort in St. Maarten.

Alegria Resort, St. Maarten guest bedroom

Alegria Resort St. Maarten

During the last 10 years, M&R Hotel Management has built a reputation for managing hotels efficiently, delivering excellent guest service and driving sales and revenue. While I’ll take an up cycle over a down cycle any day, I am confident our commitment to performance and quality and service will prevail in any economy.