If you think being underwater $100,000 on your home mortgage is bad, imagine trying to sleep at night thinking about how your $400 million hotel investment has lost $100 million in value with the real estate crisis of the past two years.
The western playground of Scottsdale, Arizona has newly opened hotel properties like the InterContinental Montelucia and Starwood’s W Hotel Scottsdale sitting around waiting for foreclosure auctions.
So why are hotel loyalty programs being so generous?
And why are loyalty travelers so happy?
Hotel loyalty program bonus promotions have offered some of the most generous bonus incentives for frequent guests in years. Free night offers and bonus point offers are hard, fast, and repetitive, yet hotel occupancy and hotel room rates are still declining after a full year of unprecedented declines for the lodging industry.
Hotel loyalty programs are increasing the value of hotel points by offering repeated discounts on the cost of a free night using points. IHG Points & Cash; Marriott Rewards discount on PointSaver nights; Starwood Preferred Guest eliminating higher point peak season rates for 2009 on free nights using points at its high-end hotel Category 5, 6, and 7 properties.
Ironically, in the face of increased value for hotel points, Hilton HHonors has cut back on availability using Point Stretcher discount nights with HHonors points for 2009. A rumor spread on FlyerTalk in July stating HHonors Point Stretcher nights, free nights using points at a 40% discount, would be discontinued for 2009. In August, a Hilton HHonors posted a statement on its website stating Point Stretcher awards would be posted in September. It is now September 28 and there have been no hotels posted.
The message now simple states: Point Stretcher Dates are currently unavailable.
http://hhonors1.hilton.com/en_US/hh/rewards/pointstretcher.do
And occupancy levels are still declining and hotel rates continue to fall every month for the past year.
Hotel loyalty programs are repeatedly lowering the qualification requirements for hotel loyalty program elite status in 2009. Starwood, Marriott, and Hyatt offered double elite credit in 2009 promotions and Hilton will give most anyone a shot at Gold for 4 stays. IHG sells InterContinental Ambassador status and purchasing your way to Priority Club Platinum is a fairly easy task.
And occupancy levels are still declining around the US.
Hotel rates in the US have dropped nearly 10% in the past 12 months and some locations have posted 15% to 20% declines in room rates.
And occupancy levels are still declining around the US.
Why the next two months are important to watch for hotel industry indicator data.
A year has passed since the economic bubble burst bringing lower rates to the hotel industry. The industry is only projecting profitability to start improving in the latter part of 2010. The next two months may still show declines in occupancy and room rates and these will be based on the large declines in occupancy and rates from October and November 2008.
2009 snapshot of US hotel industry room rate and occupancy data.
December 2008
The occupancy and room rate declines were quite apparent a year ago in late 2008 when in the first week of December 2008 New York City occupancy had declined 9.2% from the same week in 2007 as room rates had fallen 14.9% over the year to average $348 per night. Rates had pushed $380 average by 2007.
In December 2008 PricewaterhouseCoopers predicted a 2% decline in US hotel demand for 2009 and a RevPAR decline of 5.8%. http://www.hotelmarketing.com/index.php/content/article/hotel_giants_seek_refuge_in_niches/
February 2009
February is the peak travel month of the year for Hawaii. In February 2009 the numbers showed a 12.4% room rate decline from 2008 with room rates dropping from $213.62 to $187.21. The room occupancy rate fell to 74.7%, its lowest level since the 1991 Gulf War. http://www.usatoday.com/travel/hotels/2009-04-06-hawaii-hotel-occupancy_N.htm
March 2009
Hotel Marketing published hotels.com findings in late March 2009 indicating New York City real room rates had dropped to $255, a 22% drop for the final quarter of 2008 compared to 2007. The data also stated real room rates were only 1% higher than January 2004.
http://www.hotelmarketing.com/index.php/content/print/global_hotel_prices_down_by_12_percent/
By mid-March 2009 the hotel industry forecast by PKF Hospitality Research (PKF-HR) called for hotel occupancy to drop 7.8% in 2009 across the US. The 6.4% predicted drop in average daily rate would designate 2009 as the greatest hotel rate decline since data was first tracked in 1932 by PKF-HR. Remember the forecast made in December 2008 by PwC was 2% occupancy decline for the year. The biggest plunge in hotel profits since the 1930s was predicted.
PKF predicts the greatest hotel rate discounting will occur in Summer 2009.
“In 2010, the vast majority of cities are still forecast to experience a decline in RevPAR for the year. However, emerging signs of economic recovery are expected in many markets, and 14 cities across the U.S. will enjoy RevPAR increases over 2009. Joining Anaheim and Minneapolis as the markets expected to lead the lodging industry recovery are the cities of Atlanta, Austin, Detroit, Oahu, Fort Worth, Raleigh, Chicago, Dallas, Nashville, Columbus, Albuquerque, and Houston.”
|
U.S. Lodging Markets |
Greatest and Least 2009 Forecast Decline in RevPAR* |
|
Market |
Decline |
|
Pittsburgh |
-6.8% |
|
Houston |
-6.9% |
|
Raleigh |
-7.5% |
|
New Orleans |
-7.9% |
|
National Average |
-13.7% |
|
Charlotte |
-18.7% |
|
Miami |
-19.1% |
|
Phoenix |
-20.5% |
|
New York |
-26.1% |
|
Source: PKF Hospitality Research |
|
* March 2009 Hotel Horizons Report
http://www.hotelnewsnow.com/Articles.aspx?ArticleId=859&ArticleType=0&print=true
RevPAR is an indicator of hotel profitability. So did we seen signs of RevPAR declines in line with this forecast in the 6 months since the table was published?
New York RevPAR decreased 31.8% for August 2009. Nationally RevPAR decreased 19% for August 2009. Phoenix RevPar had decreased 25.8% by July 2009 according to STR compared to the PKF forecast of 20.5% for the year. These three indicators show more than a 5% negative variance on the figures in the table. The hotel industry is worse off than the March 2009 forecast.
April 2009
Smith Travel Research data for the first week of April 2009 showed Anaheim average room rates had dropped 17% to $107 per night. Chicago also listed above as a market recovery leader saw a 22% year-to-year drop in occupancy from April 2008 and a 24% average room rate decline to $111 per night.
http://www.hotelnewsnow.com/Articles.aspx?ArticleId=980&ArticleType=0&PageType=SameAuthor&print=true
At the end of April STR released a revised 2009 hotel industry forecast calling the first two quarters of 2009 to be the trough and relief emerging in the latter part of 2009. Year-end occupancy in US hotels was projected to decline 6.5% to 56.5%. The average daily room rate was projected to be down 3.6% to $102.89.
May 2009
Luxury Hotels Room Rates Drop
In late May 2009 STR’s Luxury Chain Scale, a composite of about 30 luxury and high-end hotel brands showed occupancy had declined 14.5% to 63.1% by April 2009 compared to April 2008. Room rates had fallen 16% to $249 per night across these hotel brands.
http://www.hotelnewsnow.com/articles.aspx?ArticleId=1259&PageType=Featured&ArticleType=1&print=true
June 2009
By June PKF revised its forecast to project falling room rates for the remainder of 2009, however, the rate declines would slow later in the year. Occupancy declines were still projected at 8.1% and room rate declines for the year were posted at 10.2% for 2009. Room rates were also predicted to fall another 3.3% in 2010.
http://www.btnonline.com/businesstravelnews/headlines/article_display.jsp?vnu_content_id=1003983721
STR released May 2009 data showing all 25 major hotel markets in the US saw year-over-year declines in average daily rates and occupancy. Oahu, Hawaii had the lowest occupancy decline of any major market at 4.9% drop.
Detroit, predicted by PKF to be a leading indicator of hotel market recovery in 2009, led the US in occupancy decline at -20% from May 2008. Houston and Dallas also cited by PKF as hotel recovery indicator markets had greater than 15% occupancy declines.
Nashville had the lowest decline in average room rate at just 4.1% to $91 per night.
STR June monthly data showed Minneapolis, Houston, Phoenix, and Detroit had seen the largest occupancy declines in the nation, each city with more than a 15% drop in guests. Three of these cities were cited as leading indicators for hotel market recovery by PKF in March 2009. New Orleans was the only major market to show slight gains in rates, yet still showed a slight decline in occupancy.
http://www.hotelnewsnow.com/Articles.aspx?ArticleId=1577
July 2009
In July STR came out with a summer 2009 forecast of the hotel industry indicating some stabilization may be in sight. STR’s revised forecast called for 2009 year-end occupancy to decline 8.4% and Average Daily Rate by 9.7% to $96.43. In the three months since the STR April forecast the ADR decline had jumped from 3.6% to 9.7% for 2009.
http://www.hotelnewsnow.com/Articles.aspx?ArticleId=1487&ArticleType=1&PageType=Todays&print=true
The STR data in July showed New York average room rates had dropped 26.6% to $180 per night. San Francisco (ADR $118), Oahu (ADR $180), Houston (ADR $86), and San Diego (ADR $124) had all seen room rates drop more than 15% over the course of the previous year.
September 2009 – The Current Situation in the US Hotel Industry
In September 2009 STR released a hotel industry forecast stating transient leisure growth was the recognizable trend. STR looks cautiously to leisure travelers continuing to spend in hotels and bring the hotel industry indicators into positive territory in November 2009.
Why are hotel loyalty programs being so generous? The leisure traveler is leading the recovery of the industry and hotel chains have a desire and an interest to retain leisure travelers.
STR monthly hotel data numbers for August 2009 shows occupancy declined 9.9% to 60.7% across the US. ADR has dropped 10.1% to $96.58 per night.
The US lodging markets with the lowest decreases in occupancy are Washington,D.C. (65.5%), Boston (74.1%), San Francisco (84.7%), Oahu (78.3%), and Tampa (48.2%). The other 20 major hotel markets had occupancy decreases in excess of 5% from August 2008 led by Detroit and Houston.
The average daily rate declined the most in Denver with a rate drop in excess of 30% to an ADR of $90 per night. New York (ADR $186), San Francisco (ADR $128), San Diego (ADR $131), and Minneapolis (ADR $92), all saw rates drop more than 15% in the past year.
http://www.hotelnewsnow.com/Articles.aspx?ArticleId=1914&ArticleType=38&PageType=STRPressRelease
Hotels and the Loyalty Traveler
Now in late 2009 we are looking at any further decline being weaker demand and rates on top of the steep hotel indicator drops from a year ago.
Loyalty travelers are loyal.
Hotels who offer a bargain to the loyalty traveler will see more frequent guests and those frequent guests will likely still be around when the group meetings resume and the general economy improves.
Happy loyalty travelers skimping to travel on the cheap in 2009 will find the way to hotels in hard times. Many of those same happy travelers will be high spending at hotels when times are better for the economics of hotels and the wallets of travelers.
That is why hotel loyalty programs are being so generous in 2009.
