NASHVILLE, Tennessee—Glass half empty. Glass half full. During Wednesday’s opening general session of the Hotel Data Conference, the hotel industry was viewed through both ends of the spectrum by two of its most prominent data wonks.
Adam Sacks, managing director of Tourism Economics, kicked off the “Ready, Set, Go” panel with a more somber take, highlighting a “high stakes game of chicken” that is seeing the world economies face down several imminent threats, much to the detriment of hoteliers.
In the United States, the impending “fiscal cliff” that would result in certain tax codes expiring would essentially result in “3.5% of (gross domestic product) going down the drain,” Sacks said of the economic impact.
“Is it going to happen? Probably not. It would be so disastrous that no politician would want to be on the hook for it,” he said.
Across the pond, the eurozone is facing an even more severe threat that will require massive bail outs.
“The core eurozone, countries with Germany, France, the Netherlands, are basically hanging Greece, Italy, Spain and Portugal over the edge and saying, ‘Are you going to be responsible?’” Sacks said.
The crisis has yielded plummeting levels of consumer confidence, high rates of unemployment and government-led austerity measures—all of which are taking a toll on hotel demand.
“A slowdown in demand is imminent,” Sacks said, adding future increases in revenue per available room will be rate-driven instead of occupancy-driven.
But the horizon is not completely mired with clouds. Oxford Economics’ outlook, which Sacks said has approximately a 45% chance of happening, is that the eurozone will avoid a default, consumer confidence will gradually recover, the advanced economies will show modest growth and the emerging markets’ growth will be more robust.
“There’s a number of reasons for cautious optimism,” he said. Cash positions for corporations and households are strong, the housing sector is showing signs of life, the price of money is historically low and, for the U.S. in particular, competitiveness is increasing.
When a hero comes along
Jan Freitag, senior VP of global development at STR, which along with HotelNewsNow.com hosted the conference, presented a much rosier outlook. Using the theme of “Holy Recovery, Batman!” he highlighted record-setting demand gains as a foundation for future success. STR is the parent company of HotelNewsNow.com.
“You have a lot of uncertainty and fear, and what do you do when that happens? You keep calm and call Batman,” he said.
The U.S. industry has sold more roomnights through July than ever, Freitag said. July saw the single highest monthly demand tally as well.
Transient demand has outpaced the previous peak, while group demand is on pace with previous peaks, he added.
To help matters further, “We are nowhere near the long-term average of supply growth,” Freitag said. Supply growth in the U.S. is 0.4%.
The only thing lagging, he said, is rate.
From September 2008 to the trough of the recession during April 2010, average daily rate declined 10% in the U.S. hotel industry. During the next 19 months through December 2011, it increased 4.9%.
ADR for the U.S. industry in general is $8 below where it should have been had hoteliers increased rate along with inflation. Even standout markets such as New York, which has seen significant increases during the past year on a year-over-year basis, is still $34 below its previous peak on a absolute basis.
“Demand growth is off the charts. … Supply growth, there is none,” Freitag said. “The real question is rate. RevPAR growth is going to be rate-driven.”
Adam Weissenberg, vice chairman of Deloitte & Touche LLP’s global hospitality travel and U.S. hospitality travel divisions, highlighted six key trends shaping the hotel industry:
1. Improving financials
Public hotel company stocks have improved substantially, by and large.
“As the investors have more faith in our industry … that means companies have more money to invest in technology, hire more people and (expand),” Weissenberg said.
2. Talent development
During 2011, the direct contribution of tourism jobs globally was $98 million, Weissenberg said, citing data from the World Travel & Tourism Council. By 2022, that number will skyrocket to $120 million.
That means more people will be directly employed by hotels, among other travel sectors, which in turn means a greater strain on already stressed sources of skilled labor.
Hoteliers will have to spend a lot more time and effort on people in the future, Weissenberg said, which will prove challenging.
“We need to create career paths from people from the top schools so that they don’t leave,” he said.
3. Global expansion
“No surprise,” Weissenberg said of the trend. “Everyone is looking … into the future (to determine) where do they need to be.”
China is attracting the lion’s share of interest—and deservedly so. “By 2014, China is projected to surpass the U.S. in business travel spend. That’s just huge. My advice to you is to continue to invest in China,” he said.
But other regions, such as Africa and the Middle East, as well as the familiar Brazil, Russia, India and China, BRIC countries, hold promise as well.
4. Social media
“I think the challenge for us is, ‘What’s the (return on investment)?’” Weissenberg said. “If you’re going to invest in social media, what’s the return?”
“Historically, it’s been very tough for the industry to invest (in technology),” he said. “But now I think the last year or two … there’s a lot more investing going on, which I think is great. The industry has turned the corner.”
Weissenberg pointed to The Cosmopolitan Las Vegas as a prime example of how advances in technology, whether in the front or back of house, can enhance the guest experience. “The in-room tech is like nothing you’ve ever seen,” he said.
Nearly 40% of all credit-card hacking cases involve hotels, Weissenberg said.
“We need to continue focusing on that and making sure we’re paying attention to that.”