CHICAGO—When the going gets tough, the tough hold their rates steady, according to panelists at Perkins Coie’s “Navigating Troubled Times in the Hotel Industry” seminar in December.

A panel of operators addressed creating value during the Managing Hotels in a Down Economy session.

First and foremost during a downturn, according to Biff Hawkey, senior VP of development at Hostmark Hospitality Group, is to maintain rates.

“The last thing we can afford to do is start with rate cutting—nobody is cutting labor costs, utility costs are not going down. Nobody can function if we start a rate war among ourselves.”

But there are ways to provide value, Hawkey said. Among them:
• Market rate changes in an “opaque” way. Give a good group rate, but don’t broadcast a rate sale on Hotels.com.
• Use spas and food and beverage to incentivize stays.

The panelists offered suggestions on how to cut costs. Labor, which is the largest expense at a hotel, is the natural first target.

Deno Yiankes, president and CEO, investments and development at White Lodging Services Corporation, said the focus should be on staff efficiencies and cross-training, rather than cutbacks. Although, for instance, if a salesperson is not getting returns, that’s a position to consider eliminating.

Hawkey said to consolidate and modify. If you close an F&B outlet, then you can shift the burden to the catering department.

“Get the housekeeping staff to recognize that the room quotas they bargained for need to change,” he said. “Employees know these are horrible times, and they know there need to be changes to survive.”

An important lesson for hotels is to accept the downsizing, according to Michael Shindler, president of Four Corners Advisors.

“A national operator might be able to displace business so there’s not a net loss,” he said. “That’s the effort that the sales and marketing team is going to have to address.”

Yiankes identified the moderate supply growth as an encouraging trend, and thought that failed residential products could see a new life as transient lodging for developers who would take the risk and flip the projects.

The most likely markets: “All of the top five markets with the biggest declines in housing—the poster child is Miami, and southern Florida, Phoenix, Denver to a lesser degree, downtown Chicago. The return will either be as—if they are developed as condos—rental apartments or hotels.”

Spend more to make more?

The panel agreed that it’s not quite the right time to reinvest in properties.

“Everyone’s cost of capital went up,” said Cory Warning, VP, acquisitions & development at Strategic Hotels & Resorts. “We’ve tempered a lot of our projects for many reasons, but it’s just not the right time (to spend money).”

Shindler said if the recovery arrives in 2010, then now is a fine time to plan and cost a renovation. But if it’s going to be three more years of bad times, then “tighten the belt and hold off a bit.”