Vacancy: Signs Dot Lodging Landscape: The Effects of the Recession Have Finally Caught Up with the U.S. Lodging Industry. Leisure and Business Travel Have Fallen off as Consumers and Businesses Tighten Their Purse Strings. Hoteliers Are Trying to Find Creative Ways to Draw in Customers and Are Waiting for a Turn in the Economic Tide to Bring Travelers Flooding Back
Pratte, Lela, EconSouth
Without a doubt, the lodging industry has seen better days. The unfortunate mix of weak demand and strong supply growth has resulted in what Atlanta-based PKF Hospitality Research describes as one of the worst years on record for the industry. According to Smith Travel Research, a lodging industry research firm, three key industry performance measures declined sharply: from July 2008 through July 2009, occupancy rates fell 10.3 percent, average daily rates fell 8.8 percent (to $98.41), and average room revenue (referred to in the industry as revenue per available room, or RevPAR) fell 18.2 percent (from $67.40 to $55.12).
Troubling signs for the industry first appeared last summer, when occupancy rates sank to 68 percent, a 4 percent dip from 2007, according to Standard & Poor's. For much of 2008, an influx of international travelers, drawn by a weak dollar and the relative strength of other economies, helped offset the lull in domestic travel. According to the U.S. Commerce Department's Office of Travel and Tourism Industries, overseas arrivals to the United States (including those from Mexico and Canada) topped 25 million in 2008, up 6 percent from 2007. But the flood of international visitors to the United States slowed to a trickle after the financial crisis in the fall of 2008, and the number of foreign visitors is expected to drop 9 percent for 2009, according to the U.S. Travel Association.
Consumers curtail travel plans
Job losses and job insecurity, declining household wealth, and tight credit have curbed consumer spending. Not surprisingly, people are taking fewer and shorter vacations. Data from the U.S. Bureau of Economic Analysis indicates real spending on travel and tourism fell at a 5.9 percent annual rate in the first quarter of this year following a 6.9 percent drop in the previous quarter. A survey conducted for CareerBuilder.com highlights Americans' travel apprehensions: 35 percent of those surveyed were not planning to take a vacation in 2009; 71 percent cited finances as the reason, while roughly one in five were worried about losing their jobs or felt guilty for being away from the office.
But leisure demand may be starting to rebound, according to Peter Yesawich, CEO of Ypartnership. In a July 2009 survey by the market research firm, 63 percent of respondents planned to take an overnight trip in the next six months, up from 61 percent a year ago. But even though people are keeping their vacation plans, the hitch is that travelers are downgrading their accommodations and shortening their stays.
Business travel--the sweet spot goes sour
Like leisure travel, corporate travel has fallen off, causing even more pain for the lodging industry. Isaac Collazo, a vice president at InterContinental Hotels Group (IHG), based in Atlanta, calls business travel "the sweet spot in the hotel industry." Individual business travelers and corporate groups are traditionally a reliable source of revenue for hoteliers because they tend to pay premium room rates. But the tough economy has forced many companies to cut their travel budgets. Collazo says that the absence of business travelers has been especially noticeable for conventions and meetings. In fact, a survey conducted by Ypartnership found that meeting planners expected their budgets for 2009 to shrink by an average of 23 percent, with the economy being the primary reason for the decline.
Corporate cost cutting for group business travel has been aggravated by what is being called the "AIG effect." Following the public backlash against some companies receiving taxpayer funds, many businesses are wary of attracting negative media attention for hosting corporate events that might be perceived as overly lavish. Group meetings, if not entirely forgone, are being scaled back. A recent survey of Association of Corporate Travel Executives members found that 60 percent were avoiding leisure or resort destinations, even if the less luxurious accommodations were more expensive. …