What happens to lodging when the economic environment improves?
Over the past several months, it has begun to appear that the overall health of the U.S. economy has begun to move slowly from the critical patient stage to the stabilization stage and very recently to slow recovery stage. No one, at this point, believes that the economic recovery will be either swift or robust. So if, indeed, we have an extended period of time before we can utter the word “recovery” with any confidence, what does that mean for the hotel industry?
First of all it means that we are in for an extended period of sluggish demand growth that certainly will result in ongoing pressure on room rates. With that said, the industry’s bottom line is likely to become more challenged in the coming months because it is likely to face the unseemly combination of declining revenues and increasing costs.
If the coming recovery plays out as most analysts predict and the overall economy improves with little or no real employment growth, then that makes the lodging industry’s recovery lag a bit more. Sluggish employment growth probably translates into a slower return of both the transient business traveler and attendance at meetings and conventions.
In addition, the hotel industry typically lags the overall economy when recovering from a recession. That is almost certain to be the case this time and one begins to wonder if the pricing “hangover” that the industry will feel will have an even longer effect.
Now, having said all that, the industry can do some things to help accelerate the pace of the recovery. The most important, of course, is room-rate management. It will come as no surprise to anyone who either knows me, has heard me speak or reads my blogs that I feel like at least part of industry’s current dilemma is self inflicted. While it is clear that room-rate realignment was necessary, the depth and breath of the decline in room rates was unnecessary. Not everyone agrees with this view, but I remain convinced.
If the industry is to capitalize on an economic recovery, regardless of it’s timing, now is the time to start planning for that day. In order for hotels to begin to reap the financial benefits of improving business conditions, they must at least attempt to climb up the room-rate ladder at a pace that approximates the swiftness with which they were able to negotiate the slide down!