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Hotels Losing Extra Revenue

Cellphones and laptops taking bite out of hotel revenue

Hugo MartĂ­n  Sep 05, 2010

The nation's hotel industry, already struggling to pull out of its worst slump in decades, is now suffering from another loss in revenue because of the booming popularity of cellphones and laptop computers.

In the past, hotel operators could expect to collect extra money by charging guests for in-room phone calls and on-demand movies.

But today most guests check into a hotel packing cellphones and laptop computers that are linked to the Internet and loaded with movies, games and music.

Proceeds from phone calls and movies have represented only a small share of a hotel's overall cash flow, but the sharp decline in revenue from those sources comes as the recession-wracked hospitality industry tries to rebound from the lowest occupancy numbers and room rates in decades.

It has hotel managers scrambling to make up for the loss by offering other entertainment, such as Saturday night movies by the pool, Sunday morning brunches, live music and spa treatments.

"In this economy, any loss of revenue and you are going to pull your hair out," said Bruce Gorelick, general manager of the Renaissance Hollywood Hotel.

Hotel managers such as Gorelick have been frustrated by the loss of revenue since the start of the recession, when demand for hotels plummeted, pushing room rates to their lowest levels in years.

The industry's recovery has been slow, even though leisure travelers began to loosen the purse strings a bit on summer travel. Analysts with Smith Travel Research forecast a modest 4.4% increase in occupancy rates for 2010 and daily room rates that remain flat.

But the industry has a long way to go to overcome a slump that pushed down the average hotel occupancy rate in the U.S. to about 56% in 2009 — the lowest it's been in more than 20 years. Revenue per room dropped so sharply that hotel foreclosures in California quadrupled last year.

"Occupancy is starting to inch up," said Jeff Higley, a spokesman for Smith Travel Research. Still, he said analysts believe that room rates won't return to pre-recession levels for at least two or three years because managers are reluctant to charge too much. "Rates have really taken a beating."

At the same time, revenue from phone calls and in-room entertainment has been drying up.

Annual revenue collected by U.S. hotels from phone calls dropped to an average of $178 per room in 2009 from $1,252 in 1999, a decline of 86%, according to Colliers PKF Hospitality Research. Meanwhile, income from in-room movies and games dropped to $126 per room from $171, a decline of 26%, according to the research firm.

Cheryl Anker is a prime example of the trend.

She travels often managing Off 'N Running Tours, a Los Angeles-based company that organizes running tours and races. During a business trip to San Antonio last year to manage a 5-kilometer race, she said she entertained herself in her hotel room by watching Alfred Hitchcock's "North by Northwest," which she uploaded from the Internet onto her laptop computer.

"So I nestled in with my wine and snacks," she said. "A very good evening."

But hotel entertainment companies such as Lodgenet Interactive Corp. would not call it a good evening. The Sioux Falls, S.D., company is one of the nation's largest providers of in-room entertainment systems, serving nearly 2 million hotel rooms worldwide.

In 2009, Lodgenet revenue dropped by nearly $50 million, or 9.3%, to $484.5 million from the previous year, according to a company earnings report. Lodgenet attributed most of the decline to a drop in sales of on-demand movies, games, music and other interactive services delivered through hotel televisions.

Lodgenet's downward trend continued through the second quarter of 2010 when the company reported a net loss of $3.1 million, according to an earnings report.

Lodgenet blames some of the losses on the recession and predicts that the future rollout of interactive, high-definition televisions in hotel rooms will "allow for the introduction of a broader array of services for guests and new revenue opportunities for hoteliers," company spokeswoman Ann Parker said in a statement.

As for hotel operators, many have given up hope of recapturing the boost from in-room entertainment.

"That revenue is gone," said Matt Greene, general manager of the Hard Rock Hotel in San Diego. "It's nonexistent."

In fact, by embracing the technology that guests demand, such as free Internet access, free computer applications and docking stations for iPod media players, hotels have cut off potential revenue sources. According to a recent survey by J.D. Power & Associates, 55% of U.S. hotels offer online access at no charge.

"The reality is that hotels have to find different ways to drive revenue," Greene said.

At the Renaissance Hollywood, Gorelick is trying to do just that by offering guests new entertainment options, such as a Sunday brunch accompanied by live jazz and outdoor movie nights every Saturday at the pool, to entice families to stay at the hotel for food and entertainment.

"Today, every penny count," he said. "Every revenue stream counts."

Cellphones and laptops taking bite out of hotel revenue
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