REPORT FROM THE U.S.—Top industry issues, such as increased demand, pricing power, sustained labor cuts and franchisor-franchisee relationships were front and center at the 15th annual National Association of Black Hotel Owners, Operators and Developers conference in Miami.
The audience, made up mostly of students and African Americans looking to break into the hotel industry by buying or building a hotel, got their fill of industry data from PKF Hospitality Research and STR, parent company of HotelNewsNow.com.
Robert Mandelbaum, director of information research at PKF, said the U.S. hotel demand growth of 2011 has taken his organization by surprise. Revenue per available room has followed suit, he said. Only in New York, where there is 7% supply growth and demand can’t quite keep up, are RevPAR numbers suppressed.
“What limited supply growth there is has occurred in the midscale and upper-midscale segments,” Mandelbaum said. “Fortunately the demand has matched it.”
Jan Freitag, VP of global development at STR, said although demand is back hoteliers still haven’t embraced the idea that they can raise rates. “Hoteliers are saying ‘How full is my hotel before I have pricing power?’” he said.
On average, upper-level chain-scale hoteliers are selling seven out of 10 rooms each night, Freitag said. He said, if you consider Sunday has an average occupancy of around 50%, that implies that Tuesday/Wednesday and Saturday have to be pretty full. This implies that the business, group and leisure travelers are back on the road.
However, for perspective, Freitag compared performance metrics to pre-downturn levels. He said the midscale market is the only market outperforming 2007 numbers in actual RevPAR levels.
Profitability and performance
Mandelbaum gave the audience some insight into profitability. He said hoteliers did a great job at cutting labor costs during the downturn, but that in the past hoteliers tend to reinstate all of the amenities, services and employees when revenues return. This time, so far, he said hoteliers are convincing him that cost cutting is sustainable. From the hotels who report data to PKF, expenses in 2009 were cut by 12%. In 2010 expenses grew only 3.4%, and labor-cost growth was only 2.7%.
“Quite frankly we were a little skeptical,” Mandelbaum said. “It’s an interesting phenomenon, the remarkable ability to control labor costs in 2010.”
Mandelbaum also offered insight into hotels’ actual performance versus their budgeted performance, saying actual performance in 2010 exceeded budgeted performance by 9.2% overall.
“It was a good year, it caught us by surprise,” he said. “We are definitely in recovery, however it’s a little bit delayed. We experience stronger than expected growth in demand and little to no supply growth. Costs are under control.”
One of the most important things for potential hotel owners to understand is the hotel franchising model in the United States. A panel of executives from the leading hotel franchisors discussed tools they offer to help franchisees run their businesses.
All the panelists agreed that potential hotel owners should do their due diligence and research before choosing to partner with a brand. For example, determine what other brands are in the market.
“The onus is on the owner to do the due diligence,” said Liam Brown, COO of The Americas for Marriott International’s select-service and extended-stay hotels. “We (brands) are in it for the money just as you are, so you have to figure out what is best for your dollars.”
Raj Trivedi, executive VP and development officer with LaQuinta Inns & Suites, suggested talking to other franchisees from the respective brands to see what kind of experience they are getting.
“Homework is absolutely essential,” he said. “Most importantly, when you are ready to sign on the bottom line, you should have clear expectations as to what you’re getting.”
Hoyt Harper, global brand VP of Sheraton Hotels and Resorts, said Starwood Hotels & Resorts Worldwide has a vested interest in its franchisees being successful. Therefore, Starwood considers the franchisor-franchisee relationship a “true partnership.”
One of the jobs of a brand is to determine what customers will pay for, said Bill Fortier, senior VP of development in the Americas for Hilton Worldwide. He said a lot of money is spent on researching and implementing brand standards, and if franchisees don’t implement them, customers will go to a hotel that has.
“It is our responsibility to keep the brand consistent,” Trivedi said.
Harper said Starwood does its homework when researching and implementing brand standards. Decisions are presented to a board of franchisees before they’re finalized.
“Having a robust franchisee advisory board is a must,” Brown said.
A question from a student in the audience prompted the executives to shed light on how they rose to the top of their respective companies and became so successful.
“Hard work, planning and determination,” Brown said. “You have to believe in yourself. We are successful because the people who have taught us and the people we have surrounded ourselves with.”
Brown quoted one of his mentors, Bill Marriott, chairman and CEO of Marriott, who once told him, “Master what you currently do and then actively seek more responsibility.”