NEW YORK—Industry analysts gathered to share an updated snapshot of the U.S. hotel industry during a general session at the American Hotel & Lodging Association’s Hospitality Leadership Forum last weekend to kick off the 2008 International Hotel/Motel & Restaurant Show.

Moderated by David Kong, Best Western International’s president and CEO, the panel discussed such topics as performance outlook, the state of the industry’s pipeline and the merits of discounting.

“The industry’s fairly profitable,” said Mark Lomanno, president of Smith Travel Research, despite declining room demand (-0.6 percent year-to-date) and occupancy (-3.1 year-to-date).

He added that the sharpest occupancy drops occurred in the business sector, a trend that has flipped from previous years in which leisure travel saw the most significant declines.

As a result, one out of four properties in the U.S. is reporting declining occupancy and average daily rate, with the biggest impact being felt in the luxury chain scale.

“The luxury segment is going to be more affected than the others,” Lomanno said. “It’s going to be more severe this time.

“It just doesn’t look good for people to schedule big meetings at luxury hotels,” he said, referring to the recent criticism directed at executives from American Insurance Group Inc., who went on an expensive business retreat days after receiving a US$85 billion bailout from the Federal Reserve.

Recovery through discounting?

On the subject of discounting, Lomanno voiced concern.

“I don’t think that lowering your room rates in this type of environment works,” he said. “If people are coming, they’re coming. … With this transparency of rates, your ability to steal demand is very limited (and) you can’t gain any advantage from this transparency.”

Citing the downturn in 2001 and 2002, he said it took rates six years to recover after hoteliers engaged in rampant discounting in an attempt to stimulate demand.

But Lomanno did admit there are specific instances in which discounting can work.

Peter Yesawich, chairman and CEO of Ypartnership, said discounting is effective when targeting discretionary market share in leisure travel and meetings.

“Where discounting works is for the discretionary part of your business,” he said. “ It has to be applied selectively.”

Douglas K. Shifflet, chairman and CEO, D.K. Shifflet & Associates, said that rate integrity notwithstanding, value is a more determinate driver of demand.

“You can hold your rate, but if (travelers) don’t see the value in that, they will go someplace else … to find a less expensive property for their use.”

Lending slowed to a trickle

As travelers have become increasingly fickle about properties, so, too, have banks. The credit crunch has all but slowed lending and the transactions market to a trickle, said Patrick H. Ford, president of Lodging Econometrics.

“There is no financing availability at all for large hotel developments,” he said, adding that 80 percent of commercial banks intend to further tighten lending in the future.

There still is some financing available for projects with fewer than 200 rooms from community banks, but that also has slowed, Ford said.

This shortage of lending has had a devastating impact on the transactions market. In 2007, there were 3,325 total transactions in the U.S. lodging industry. Thus far in 2008, there have been 668, according to Ford.

The pipeline has been negatively affected as a result: Cancellations have been increasing for three straight quarters, including more than 60,000 rooms in the third quarter alone.

Industry outlook bleak

When financing slowing and performance metrics dropping, the future will bring more challenges, the analysts agreed.

Warren Marr, director of hospitality and leisure consulting services for PricewaterhouseCoopers, projected three consecutive quarters of declining gross domestic product beginning with the third quarter of 2008.

“Reductions in lodging demand already experienced in the third quarter will intensify this quarter and the first quarter of next year,” he said. 

Marr projected a 2.4-percent drop in ADR and a corresponding drop of 5.8 percent in revenue per available room in 2009.

Lomanno was slightly more optimistic.

“We’re probably the only group of people doing forecasting who think ADR will be positive (+1 percent) in 2009,” he said. 

Ford said to expect more of the same from the pipeline.

“We see the pipeline continuing to recede through probably 2010, perhaps even through 2011,” he said.