Hotels Struggle, but Guests Less So

For the hotel industry, recently riding high on years of record profits, the good times have ended suddenly, and no one knows when they may resume.

Both domestically and internationally, many properties managed by major hotel companies are reeling from an unanticipated drop in demand that began in late summer and abruptly accelerated with the economic crisis on Wall Street.

A top executive with an international luxury hotel chain, who did not want his name used for fear of losing his job, told me recently that the dominoes are falling among full-service hotels frequented by business travelers in London, Tokyo, Hong Kong, Shanghai, Paris and even New York. Until recently, hotel rates in New York were buoyed by robust demand by financial services executives and by foreigners lured by a favorable exchange rate.

The good news, at least for corporate travel managers, is that for the first time in many years, they have negotiating power as they put together contracts for next year.

“Very tough negotiations are going on,” said Jan D. Freitag, a vice president at Smith Travel Research. Some tough corporate managers have even insisted on reopening rate negotiations that were completed in late summer, given the rapid recent deterioration in pricing power at hotels.

Until recently, most industry projections were that hotel revenues would continue growing, despite a softening worldwide economy, although at a slower rate than since the most recent boom began in 2004.

Those projections are rapidly being challenged.

PKF Hospitality Research recently revised rosy earlier projections and predicted that revenue per available room, the standard measure of hotel performance, would decline 4.3 percent, and profits would decline 7.9 percent for domestic hotels next year.

Smith Travel Research projected a slight increase in revenue per room this year and a decline of 2.5 percent next year. That is a major turnaround in revenues, which rose annually by an average of 7.5 percent from 2004 to 2006.

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