Jun012008

Staycation Hotel Economics

A staycation in Carmel isn’t necessarily an adverse idea
Back in January I blogged about the impact of the economy on travel “Money for Nothing (but my MTV)” from a personal point of view as a consumer. The stock markets were shuddering from the finance markets liquidity crisis. And this was all before the huge spike in gasoline prices for the American consumer. Times are generally looking harder for the leisure traveler.

I have to wonder if the Cornell Center for Hospitality Research advice for hotels to maintain an operating model of higher prices, lower occupancy will hold as the American consumer is squeezed by household inflation. The strategy of high prices, lower occupancy as a hotel business model is based on the findings that hotels which maintained their rates in the year following the September 11 attacks came out with more profits than hotels that lowered rates to boost occupancy during the travel slump after 9-11 (hotel rates were at record highs at the time of the 9-11attacks).

I believe the travel impact of the post-9-11travel recession was due in large part on fear of travel. There were incredible airline travel deals at the time. Priceline was my good friend for hotels and $60/night central city 4-star hotels in the capitals of Europe. The dollar was strong as a currency and offered high value in foreign exchange for travelers.

Will the game of chicken play out the same for our current travel crisis in 2008 as it did in 2001?

Reality check of the travel environment of 2008:

The Euro caused a general inflation of about 20% overnight in Amsterdam when prices were converted from Dutch Guilders to Euros for this American traveler. The dollar is worth only about half as much as it was shortly after the Euro became the currency.

Hotel average daily rates in the USA have increased annually at about triple the rate of inflation for the past several years in the USA where there are no currency issues compounding the high rates. Internationally, rates have more than doubled in many countries as the US Dollar has lost 20% to 40% of its value against most international currencies over the past five years.

Air travel has become much more expensive with the rise in fuel and the addition of fuel surcharges to ticket prices. Using 100,000 frequent flyer miles for a premium class award ticket to Europe will now cost as much as a regular miles earning ticket did in late 2001. I was earning nearly 40,000 frequent flier miles for every $400 all-in ticket to Europe in late 2001. And now, in 2008, it can cost $400 in award ticket fees to fly to Europe using frequent flyer miles.

Gasoline prices for driving around the USA have more than doubled since the post-9-11 travel recession. When the cost of taking a 900-mile road trip means a $200 gas expense, the frequency of travel decreases (San Francisco to Los Angeles and back is about 900 miles).

Staycation” is a term being tossed around frequently these days in the media. Too broke to travel? Stay in town for your vacation. Fortunately, I have regularly used staycations for years as a hotel strategy to maintain high elite status with a hotel loyalty program like Starwood, Hyatt, or Hilton. The staycations are rather enjoyable as San Francisco is my “Staycation” vacation home base.

The only article I have seen showing a rise in USA travel is from American Express regarding travel to Europe. Every other piece of data I have seen shows declining travel for Americans in 2008. TravelPort owns the Galileo global distribution system. GDS reservations are what travel agents use to make bookings and about half of all worldwide travel reservations are made through a GDS. TravelPort reports reservations numbers for 2008 show a 7% decline from the same period for 2007 for travel in the Americas and a 3% decline overall globally. And this is at a time when hotel room supply in the USA is about to increase dramatically as new hotels open over the next two years. The hotel projects took off in the boom years of real estate and will open from 2008 to 2010 in the current economic bust.

The InterContinental Hotels in San Francisco and Monterey may reflect the room rates impact in the coming cycle of new hotel openings. The best available rates are about $100 less than I think they would have been had the hotels opened a year ago.

The hotel travel industry is going to try and ride the crest of the wave. For loyalty travelers it is important that the industry just remember the wave of hotel bookings is created by consumers. With the current stormy economic conditions facing the American consumer, the hotel booking wave might just go flat.

About Ric Garrido

Ric Garrido of Monterey, California started Loyalty Traveler in 2006 for traveler education on hotel and air travel, primarily using frequent flyer and frequent guest loyalty programs for bargain travel. Loyalty Traveler joined BoardingArea.com in 2008.

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