Heartbreak HotelsIn many places, the hotel industry has too many rooms and too few guests. But the lodging overload could benefit travelers.
The Summer Olympics open in Beijing on the auspicious date of 8-8-08-which won't be particularly lucky for the city's hoteliers. There won't be nearly enough visiting heads on hotel beds during Beijing's big event.
Like so many Olympics before it, the 2008 Summer Games aren't turning out to be much of a tourist magnet for the host city. About 420,000 people visited Beijing last August; Chinese officials are expecting only about 10 percent more next month. But 13,000 new rooms have already been built in the Chinese capital, and the new inventory is expected to reach 30,000 by the end of the year. The glut is particularly noticeable in Beijing's luxury tier, where there are about 50 five-star properties, up from fewer than 20 five years ago. The result: Occupancy rates and room prices have been falling; Chinese tourism officials admitted earlier this month that almost half of the city's four-star inventory was still available for the Olympics period.
Beijing's Olympian oversupply is making headlines, but the same basic tale is being spun in many places around the globe. Especially in the United States and the Caribbean, there suddenly aren't enough travelers to fill existing properties. More hotels are opening as they emerge from the three- to five-year property-development pipeline. As airlines hack away at autumn flight schedules and raise fares, there's likely to be even fewer people traveling.
The U.S. hotel industry posted a record $139 billion in revenue last year and profits surged 5.3 percent to $28 billion. But the company that produced those rosy statistics, Smith Travel Research, says 2008 will be "tougher." Frits van Paasschen, chief executive of Starwood Hotels & Resorts Worldwide, whose brands include Sheraton, Westin, St. Regis, and W, is blunter. Domestic "lodging demand dropped significantly in May," he admitted last week.
The declines in some markets are startling. In Hawaii, hotel occupancy plummeted by more than 11 percent in early July. Almost half of the rooms on the Big Island were empty, and one in three rooms on Maui were dark. Things weren't any better in suburban Boston, where occupancy this year is running at about 63 percent. And PKF Hospitality, the much-consulted experts, suggests a direct relationship between declining airline capacity and hotel occupancy: For every one percent drop in the number of airline seats, hotels will see a 0.39 percent decline in demand. That would translate to a 3.9 percent fall in lodging demand as carriers trim 10 percent of their capacity this fall, PKF says.
Hard hotel times aren't likely to elicit a lot of sympathy from those of us who pay the bills. Nightly rates at the nation's 4.4 million rooms have been rising at about twice the rate of inflation for years as hotels made the most of rising demand. Or as the travel manager of a corporation with thousands of business travelers told me graphically last week: "Hotels made it clear who had the hammer when we negotiated rates the last couple of years. But when we start doing contracts for 2009 after Labor Day, I'll have the hammer. And I'll be whacking some knees to get my prices down."
To shore up sagging bookings, hundreds of hotels around the country are wooing travelers with free gasoline cards that slice as much as $50 off the effective nightly room rate. Other hotels are dabbling in more traditional value-added inducements: free breakfasts or dining credits in the hotel restaurants; complimentary massages or a free round of golf; gift cards at nearby department stores; and a blizzard of swag such as logo shirts, hats, and sunglasses. (See a slide show of hotel deals here.)
In the Caribbean and Hawaii, where flight cuts have made it much harder for guests to visit, concessions have been even more dramatic. Sandals, which operates a dozen couples-only all-inclusive resorts in Jamaica, Antigua, St. Lucia, and the Bahamas, has been advertising discounts of as much as $1,100 a couple. The savings is offered as an "air credit" against your bill to offset the high price and inconvenience of flying. More than a dozen hotels in the Turks and Caicos have banded together to offer guests a fourth night free. A travel packager has been promoting summer vacations on the lush (if rainy) Hawaiian island of Kauai, with free car rentals, meals, wine, and, of course, free nights.
There is one thing hoteliers aren't yet offering in great supply: lower room rates. "Luxury properties especially hate lowering their room rate" because they think it hurts their image, explains Michael Matthews, whose résumé includes notable marketing and managerial stints at Rosewood, St. Regis, Ritz-Carlton, and Regent hotels. "If he can avoid cutting the rate in the downtimes, a general manager will give you virtually anything else you ask for: room upgrades, free cabanas at the pool, a suite, limo service, spa treatments, free meals."
To make sure you get the best perks, "call the general manager before you arrive and introduce yourself," Matthews says. "Don't be pushy, but let him know you'd like more for your rate."
What happens if value-added perks don't put our heads on their beds this fall and winter? "We'll make the offers even richer," the top marketing executive of a major mid-priced brand told me last week. "As a last resort, we'll look at rate cuts. But I hope we don't get to that."
The Fine Print.
Hotels in New York, Philadelphia, and Miami continue to do well, primarily due to an influx of European travelers who are taking advantage of the weak dollar. Bargains will be scarce in those cities. But Las Vegas is already suffering from a massive decline in visitors and prices. Nevada gaming officials say the take at the city's casinos was down in May for the fifth consecutive month. And a website devoted to Vegas says nightly room rates have plunged after five years of escalating prices.
