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STR CEO: Not all bad news during downturn
October 11 2010

Hotels’ pre-tax operating profit during the downturn is a sign that hoteliers have become savvy hotel managers, STR CEO and co-founder Randy Smith said during a keynote address at the Cornell Hospitality Research Summit.

Highlights
  • Hotels managed an operating profit in 2009 with occupancy of just 54.7%.
  • OTAs ‘a necessary evil.’
  • NYC, upscale hotels lead recovery.
By Shawn A. Turner
Finance Editor
Shawn@HotelNewsNow.com

ITHACA, New York—STR CEO and co-founder Randy Smith explained what’s gone wrong—and right—during the downturn in a keynote address last week at the Cornell Hospitality Research Summit.

There has been a lot of consternation over such things as plummeting average daily rate and revenue per available room during the global financial crisis, but Smith said positive signs emerged, too. For instance, during the 1990 downturn, hotel occupancy was 63.5% and hotels recorded a pre-tax loss of US$5.7 billion.

ADR should increase by 3.9% during 2011, STR CEO and co-founder Randy Smith said during a keynote address at CHRS last week.
Contrast that with 2009, where occupancy stood at 54.7%, but hotels recorded pre-tax income of US$16 billion. Recording a profit while only using 54.7% of assets is “a remarkable achievement,” he said.

“Clearly, we are starting to do some things right,” Smith said.

Hotels improved their capital structure and operating efficiencies during this latest downturn, he said.

“We are churning out a lot of college students who are very capable hotel managers,” he said. “We have become very good operators of hotels today.”

What went wrong

Of course, not all has been wine and roses during the past 18 or so months.

“Pricing has been an unmitigated disaster in this industry,” he said.

Online travel agents played a role in the rate discounting throughout the country, Smith said. “We have now created an entire industry whose primary purpose is to drive our pricing down. People say, ‘I didn’t stay at a Marriott or Holiday Inn, I stayed at an Expedia hotel.’”

He later added, “OTAs don’t sell anything the hotels don’t give them. … They’re a necessary evil.”

Oversupply is also a big problem in the United States, particularly in the Las Vegas market. “I never thought I would see the day that would happen,” Smith  said.

Demand

Back on the positive side of things, seasonally adjusted monthly demand showed a strong rebound, according to data from STR, of which HotelNewsNow.com is a division.

During July and August of this year, demand returned to pre-recession levels. In fact, during July a total of 102.3 million room nights were sold—the most ever since STR began tracking performance data more than 25 years ago, Smith said.

Room rates increased during each of the past three months as well, but strip away New York City and luxury hotels and rates would remain in negative territory.

“I don’t think we’re in for a double-dip,” Smith said of rate, “but I don’t think it’s going up. It will stabilize.”

New York and upscale hotels lead

The Big Apple’s rates are up 7.1% year-to-date through August, Smith said. And the upper-end hotels are performing well, too.

Demand for upscale hotels, year-to-date through August, is up 15.3%. The luxury and upper-upscale chain-scale segments aren’t far behind, with year-to-date demand increases of 12.3 percent and 9.5 percent, respectively.

“Clearly, we’re coming out of this thing,” he said. “It’s been a really nice rebound so far. … The upper end is driving this recovery.”

For 2011, STR is projecting a 3.9% ADR gain.

“I continue to believe we’re going to be a profitable industry,” Smith said.

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