Updated with comments of Rick Takach, president and CEO, Vesta Hospitality
REPORT FROM THE U.S.—The United States government is unimpressed with the recovery shown this year in the hotel sector.
The U.S. General Services Administration, which sets the amount the government will shell out for hotel stays by federal workers, revealed this week government per diem rates in most areas nationwide will be plummeting during the coming fiscal year. That’s bad news for an industry that is trying to recover from one of the most severe downturns ever seen by hotels.
The rate in New York is dropping to US$269 a night from US$340 effective 1 October, a 20.9% nosedive. Vijay Dandapani, president of New York-based Apple Core Hotels, is fuming over the change. His company oversees five hotels in the city that comprise 800 rooms.
Apple Core Hotels
“If anything, these numbers should be reversed,” he said, mentioning the recent improvement in the sector.
He added, “It doesn’t make sense at all. I don’t understand what some of these bureaucrats are thinking.”
Rick Takach, president and CEO of Vesta Hospitality, said rates were down in most of the markets where Vesta has hotels. But Lincoln, Nebraska, where Vesta has a property, rates actually increased by US$4.
"I'm glad the government is showing some fiscal responsibility," he said, adding he wishes it hadn't come at the expense of the hotel industry. Vesta's portfolio comprises 12 hotels with a total of approximately 1,500 rooms.
The U.S. hotel industry posted increases in all three key performance metrics in July, according to STR data. Occupancy was up 7% year-over-year to 67.9%; average daily rate grew 1.3% to US$99.14; and revenue per available room increased 8.5% to US$67.35.
The new per diems will affect the industry’s recovery, Dandapani said.
“It’s definitely going to be a negative to the industry if you lose 5% here, 10% there,” he said.
Government business accounts for approximately 20% of the weekday business at the 150-room Americas Best Value Inn in Norfolk, Virginia, general manager Larry Sauger said. The decrease in Norfolk is less severe than in New York, dropping just 3.2% to US$92 from US$95.
“It’s not a hefty change, but it’s still a change in the wrong direction,” Sauger said. “For our individual property, my first reaction is it’s the government trying to take advantage of the situation.”
Setting the rate
The GSA uses a handful of metrics, including ADR, to set rates. The agency noted the severe falloff in ADR during the downturn as being one factor behind this coming fiscal year’s decline. ADR data is compiled for rates set between Monday and Thursday for the time period stretching from April 2009 to March 2010, a period of declining ADR for the industry.
During that time frame, ADR dropped 7.3% to US$96.94, according to STR data.
A total of 29 formerly nonstandard areas now will receive the standard per diem of US$77 for a hotel stay.
“The nation’s economic downturn has affected per diem lodging rates in many localities,” according to a statement on the GSA’s website. “Overall, the majority of locations saw a decrease or no change in per diem lodging rates.” Attempts to reach West Coast hoteliers and executives in areas that saw rate increases were not successful by deadline today.
Sauger’s hotel is instituting changes as a result of the GSA’s action and cutting the value-adds previously granted to federal employees. For instance, the property cut the value of restaurant vouchers given to federal employees in half to US$5. The hotel also now will grant room upgrades only to repeat federal travelers instead of all government workers.
Government workers are likely to start looking at other locations outside of New York when traveling, Dandapani said.
The amount of government business at Apple Core’s individual hotels ranges from as little as 5% to as much as 20%.
“Every bit matters,” Dandapani said.