Both domestically and internationally, many properties managed by major hotel companies are reeling from an unanticipated drop in demand that began in late summer and abruptly accelerated with the economic crisis on Wall Street.
A top executive with an international luxury hotel chain, who did not want his name used for fear of losing his job, told me recently that the dominoes are falling among full-service hotels frequented by business travelers in London, Tokyo, Hong Kong, Shanghai, Paris and even New York. Until recently, hotel rates in New York were buoyed by robust demand by financial services executives and by foreigners lured by a favorable exchange rate.
The good news, at least for corporate travel managers, is that for the first time in many years, they have negotiating power as they put together contracts for next year.
“Very tough negotiations are going on,” said Jan D. Freitag, a vice president at Smith Travel Research. Some tough corporate managers have even insisted on reopening rate negotiations that were completed in late summer, given the rapid recent deterioration in pricing power at hotels.
Until recently, most industry projections were that hotel revenues would continue growing, despite a softening worldwide economy, although at a slower rate than since the most recent boom began in 2004.
Those projections are rapidly being challenged.
PKF Hospitality Research recently revised rosy earlier projections and predicted that revenue per available room, the standard measure of hotel performance, would decline 4.3 percent, and profits would decline 7.9 percent for domestic hotels next year.
Smith Travel Research projected a slight increase in revenue per room this year and a decline of 2.5 percent next year. That is a major turnaround in revenues, which rose annually by an average of 7.5 percent from 2004 to 2006.
Meanwhile, new properties, planned during the early stages of the boom years, continue to open, suggesting further hotel rate cuts as fewer people travel. Currently, “supply growth is exceeding demand growth,” Mr. Freitag said.
The effects are not evenly felt. Egencia, the corporate travel arm of Expedia.com, recently reported that many business travel markets will remain strong as companies scramble to hold onto existing clients and attract new ones. But, it said, hotels in certain major markets would be hurt because of excess capacity and, in some cases, sharp reductions in airline service.
The biggest losers among hotels, with projected average room rates declining 10 percent or more next year, are in Chicago, Phoenix, New York and San Diego. Egencia did not include in its assessment major leisure travel markets that have been the most severely affected by the weak economy and a decline in air service like Hawaii, Las Vegas, the Caribbean and Orlando, Fla.
Nobody rejoices in this kind of news for hotels, which are important local employers and economic drivers. But any glance at the copious recent promotions for leisure travel to the Caribbean, Hawaii and elsewhere — including Europe and Asia — shows that bargains can be had for those with the inclination and money to travel.
Even the haughtiest hotels, which are famously loath to cut prices in bad times for fear they will not be able to raise them in good times, are in a deal-making mood, said Peter Greenberg, the travel editor of “Today” on NBC.
Online travel booking sites are now filled with promotions that offer packages with airfare and rooms from all levels of hotels. But Mr. Greenberg said he liked to book a full-service hotel by phone.
“And ask to speak directly to the general manager who, frankly, will be very happy to hear from you,” he said. “You say, ‘Hey, can you offer me any incentives?’ Right now — and remember, this won’t last forever — they are going to throw in some things that will make a real difference in the amount you actually pay, even if they don’t technically reduce the published room rate.”
Source : NYTimes
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