Hoteliers spoke with caution at the 18th annual Lodging Conference. From left to right: Roger Bloss, Vantage Hospitality Group; Liam Brown, Marriott International; Nancy Johnson, Carlson Rezidor; Tom Magnuson, Magnuson Hotel Group; and David Pepper, Choice Hotels.
PHOENIX—The United States gross domestic product is growing slowly but surely. Unemployment is trending downward. Hotel industry supply and demand are at optimal levels and hotels are as profitable as they’ve ever been.
Yet, at the 18th annual Lodging Conference at the Arizona Biltmore, no one is popping Champagne bottles. Hoteliers are still speaking with caution, afraid to say the industry is out of the woods yet.
Maybe the most recent recession stung too badly. Maybe a slowly growing development pipeline has hoteliers experiencing déjà vu. Maybe hoteliers are afraid Mitt Romney won’t get elected.
Whatever the reason may be—and it’s most likely a combination of many—hoteliers have little clarity as to what’s happening with the future of this industry and remain uncertain about what challenges their business will be facing in 2013.
“It’s very hard to be confident in making business decisions moving forward without clarity of the future,” said Marriott International’s Liam Brown, summing up the second day of the conference.
Brown, COO of select service and extended stay in the Americas for Marriott, said consumers are driving change in the industry and being able to capitalize on those changes has been a struggle.
“It’s been a long march through the desert. Just long,” Brown said. “The longest one that probably any of us has ever seen.”
The big challenge for hoteliers exiting the downturn has been the ability to parlay increasing demand into pricing power. Brown did say pricing power is on the horizon, indicating the industry is “well on its way” to a recovery.
However, the challenge remains moving from a reactive pricing strategy to a more proactive one, he said.
“We’re really good at looking back and saying, ‘Last April, we should’ve raised rates.’ The challenge for revenue managers is being ahead of the demand curve,” he said.
“Our challenge from an industry standpoint is to be confident on pricing,” Brown continued. “We have a perceived volatility in the market that stops people from having confidence around pricing. We just have to have the confidence; as we go through pricing season, we have to have the ability to get price increases.”
Brown said travelers have shown they’ll pay more for travel, indicated by a 14% lift in airline prices from April 2011 to April 2012.
Nancy Johnson, executive VP of development for the Carlson Rezidor Hotel Group, said owners have yet to grasp education on pricing optimization. She said profits continue to rise without risky price hikes. Therefore, owners are hesitant to rock the boat.
“We’re as profitable as we’ve ever been so I can’t blame some of them for saying, ‘I’m not taking any chances,’” she said. “The hardest thing we have to do as leaders is to say we need to maximize our profits because quite frankly our expenses are increasing.”
Johnson said health-care costs and capital expenditure requirements surrounding the Americans with Disabilities Act are leading to many extra financial increases for owners. She said the industry needs “a real focus on revenue optimization and making it as easy as possible to look forward and see what the opportunities are in raising rate.”
“No one feels confident enough to be aggressive,” added David Pepper, senior VP of global development for Choice Hotels International. “We just have to wait these things through.”
Confidence—from the consumers to travel and the hoteliers to raise rates—is crucial, said Roger Bloss, president, founder and CEO of Vantage Hospitality Group.
“I think if we had a starting gate and we opened the starting gate you’d see everyone running out to do business,” he said. “Everyone is waiting to do it.”
Another critical issue, Carlson Rezidor’s Johnson said, is the lack of debt. It keeps hoteliers in a “schizophrenic” mood, she said.
“You have a great opportunity if you have a local connection—that’s where it’s being done,” Johnson said. “It’s those connections that you have.”
Much of the conversation at the Lodging Conference was spent debating the impact of the upcoming U.S. election. For most hoteliers, however, it will be important to get the election out of the way and get some clarity on policies moving forward no matter which candidate wins.
“People are waiting to get back in the game no matter who is the president,” Bloss said.
Johnson said “redundancy” on Capitol Hill is hurting America. She said the legislative bodies “can’t even spell collaboration.”
Other hoteliers were more transparent on who they’re hoping will win.
“We don’t need this trickle down from the government, just get the hell out of the way and let everyone do their business,” said Tom Magnuson, CEO of Magnuson Hotels and Global Hotel Exchange. “If we have four more years of (President Barack) Obama, we’re going to go nowhere. Hopefully Romney will kick-start our industry and get our engines going.”
“With Obama, hoteliers’ profitability is going to be affected,” Pepper added. “Obamacare is going to cost you a lot of money. I think if Obama wins, profitability is going to be hurt.”
“If Mitt Romney was in, we’d be good,” Marriott’s Brown said to a round of applause from the audience.