Stay a While
Hotels stay hospitable after taking a hit
The way hospitality executives tell the story, you’d think 2009 was downright apocalyptic for the hotel industry. The hotel business “has had a very tough bump in the road,” said Stephen Joyce, CEO of Choice Hotels. “2009 was just a horrific kind of year that the hotel industry’s never seen.” And Thorsten Kirschke, EVP and COO of Carlson Hotels—The Americas, said, “It’s been a very, very rough year for the hotel industry. We’ve seen a strong decline of 15 to 20 percent.” Paul Kirwin, president and COO of Northcott Hospitality and AmericInn, reports that hotels have seen losses of 10 to 20 percent in revenue per available room (a measurement known as RevPAR).
It’s nice to know there’s still goodwill in the hospitality industry, which took a sizeable hit during 2009.
But there’s a silver lining on the horizon: value. Executives in the hospitality industry agreed that if there’s one direction the business is heading, it’s toward more bang for the customer’s buck. “Travelers in general are seeking more value and are trading down from full-service to mid-scale. Business travelers in particular are striving to be more efficient with their travel dollars and have reduced trips and length of stay. Leisure travelers are taking fewer trips or shortening their trips,” said AmericInn’s Kirwin.
And as consumers’ habits change, the hotel industry must change with them. Joyce of Choice Hotels—which includes the EconoLodge, Comfort Inn and Clarion brands—said that though the industry as a whole has seen a drop in revenues year-over-year of roughly 16 percent, an 80-percent decline in transactions and an 80-percent decline in new builds, Choice has weathered the storm by converting existing hotels as well as building new ones, by staying light in assets and low in debt, and by associating strong value with the brand—he pointed out Choice’s free Wi-Fi, free breakfast and free parking. “We also took a long, hard look at our infrastructure and made adjustments and reductions in cost,” Joyce said. “Our franchisees have suffered the most; we spent a fair amount of money providing support and service to them. And because we have such a strong balance sheet, we actually loaned the system money to significantly increase our marketing and sales efforts, to drive the business that was available more towards our hotels. And in spite of the economic conditions, we grew our consumer market share.”
Rajiv Trivedi, EVP franchising and chief development officer for La Quinta Inns & Suites, said the chain is doing well compared to the industry as a whole and even better compared to its main competitors: other select-service brands without food and beverage offerings. To combat the economy, La Quinta worked with its vendors and suppliers to get better deals for franchisees, he said. The chain has also ramped up its marketing efforts.
Carlson’s Kirschke noted that the company’s Country Inn & Suites brand took less of a hit than its Radisson brand. “Like everyone else in 2009, we had our year of cost-reduction,” Kirschke said. “That’s done, and a huge amount has been taken out of the organization. To be ready for any rebound or recovery, we have major plans in repositioning Radisson and Country Inns & Suites—we want to grow both brands heavily.”
Rooms for rent, clockwise from top left: Choice’s Cambria Suites; AmericInn; La Quinta; and Carlson’s Radisson.
AmericInn’s central nature kept the storm at bay for a bit: “AmericInn’s heavy concentration in the Midwest insulated it somewhat from the steep declines felt in major destination cities that suffered from a lack of group and meetings business,” Kirwin said. “When the Heartland started to see closures of automobile plants and similar workplaces, the brand felt the impact more intensely.” To combat that impact, he said the company has launched a “renewed focus on brand awareness and unit growth. We reviewed our standards timelines and adjusted them, keeping in mind the economy—in particular the property improvements that have higher price tags for our franchisees—by moving the required date back six months.” And the damage could have been worse: “The current economic downturn was somewhat conducive to brands like AmericInn, where the factor of value becomes extremely important,” Kirwin said.
Technology’s entrance into the hotel world has had its own impact on the consumer’s perception of value. “The consumer is looking for easier access to the hotels through electronics,” said Choice Hotels’ Joyce, adding that Choice was among the first hotel groups to develop an iPhone application. Also, online reservations systems have driven costs up, he said, “because you have to invest in the technology, and also because it’s dramatically increased the relative information and education of the consumer, and so we’ve got a much smarter consumer out knowing the offerings and pricing of what’s available. They can shop around a lot easier. The influx of third-party intermediaries (such as Travelocity and Orbitz) has led to a much more competitive situation with consumers.”
Wi-Fi has become a line in the sand: Carlson’s Kirschke compares free Wi-Fi to running hot water—both are necessities, expected without question by a hotel guest. “I can only say that for Carlson Hotels, we think (charging for Wi-Fi) is not the right thing in the 21st century. Wi-Fi is available anywhere—in airports and public spaces. Why would we start charging people if it wasn’t for greed? To me, it’s a basic service.”
As hotel companies narrow their focuses to value, they hope it’s enough to lure customers back. La Quinta’s Trivedi is optimistic on this front: “The hotel industry is resilient,” he said. “Leisure travel has been recovering and we believe that business travel will, too. New hotel development may continue to be slow for a time, but as supply and demand eventually equalize, we anticipate a new wave of growth and building.”
And though the industry isn’t back on top yet, Joyce said Choice is actively looking for a luxury brand to add to its stable of value hotels. Does this mean the company thinks consumers will be ready to crack open their wallets and once again shell out for 1000-thread-count Egyptian cotton sheets? “I think there will be a slow and measured recovery, but you never say that the traveler will return over time. I think luxury will be a tough sell for quite some time, but that in the upscale segment, business will return,” he said. “The issue with brands is you buy them when they’re available, so it’s going to be an opportunistic buy. You’d like it to be more in line with when the recovery begins, but we’re on the lookout now, and when it comes, we’re going to be ready to move.”
Kirschke shares his hopefulness: “Recovery will come, and I think we have reasons to believe that there’s a silver lining on the horizon,” he said. “No doubt, within the next 12 to 18 months, we’ll see a rebound.”