When the Hotel Industry Booms
Attendees at June’s NYU International Hospitality Industry Investment Conference left each day’s sessions smiling, no surprise considering the good news they had just been treated to: the U.S. hotel industry is thriving. April occupancy was the highest on record ever for the month of April (66.8 percent). The month also saw the demand for rooms reach a new high (99.4 million). All key performance indicators, in fact, were at all-time highs.
It’s unlikely there were any meeting or incentive program planners among the nearly 2,000 hotel owners, developers, lenders and managers present. But if there were, they would have come away with a starkly different message: time to sharpen your negotiating skills because your hotel partners are going to be raising their prices.
Of course, planners are pleased when the hotel business does well. Especially in the luxury industry tier, when operating revenues are strong, chances are better the grounds will be well maintained, staffing will be at an optimal level and CapEx dollars will be available for upgrades.
But it’s also inevitable that hotel owners will be looking to improve their bottom line. During the downturn, by contrast, planners and other travel buyers held the upper hand. Hotel sales managers by and large were just happy for the business and were willing to negotiate not only rate, but for various extras.
That’s much less likely today. As it turns out, the luxury segment is outpacing the industry as a whole. Luxury occupancy in April was up 3.7 percent, compared to prior year, according to Smith Travel Research (STR), which tracks these metrics. There also aren’t many new luxury hotels being built today. It’s actually more cost effective to acquire an existing luxury property, STR notes, than to develop a new one. (The cost is almost double, depending on the market and the barriers to entry.)
Yet there are exceptions. In New York, the Park Hyatt New York and Baccarat Hotel & Residences are two very high-end examples. The luxury property transactions market in New York has also seen records fall with the iconic Waldorf Astoria selling for $1.95 billion to Chinese interests.
The overall industry aside, the group market has come roaring back, making rate increases even more of a concern. Post-downturn, the business transient and leisure segments were the first to rebound, surprising industry analysts. But April year-to-date, STR cites significant jumps in group average daily rates in top meetings markets across the country: $269 in San Francisco, up 12.9 percent, for example, and $245 in Phoenix, up 11.2 percent.
In devising a negotiation strategy, work with your sales manager as closely as you can to find areas of common ground. Three possible tacks: Shift the meeting dates from high season to shoulder season, where there will be less demand. Choose a second-tier destination. Or move as many room nights to a property (or properties belonging to the same ownership group) in an attempt to move market share.