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Hotel Industry

Powerful players: yes; new ideas: no

Dr. Elinor Garely, eTN Staff Writer  Apr 22, 2009

It was mostly gloom and doom at the 2009 Berlin International Hotel Investment Forum. While everyone raced about searching for deals, workshop speakers addressed critical concerns: The shortage of financing and the scarcity of travelers - offering little hope in the short-term.

In response to global travel contractions airlines are cutting capacity, hotel groups are closing public space and shutting down rooms under the guise of renovation and repair, while others (with less guile) are hiding out in their offices with prayer beads in hand, waiting anxiously for the bell that will sound recovery.

Deals? Not Really!
Leisure and business travelers are looking for industry bargains, but most “discounts” are more hype than happiness. The current marketing belief system focuses on incentives (i.e., adding a complimentary massage or pedicure, including a buffet breakfast in the room rate, and/or permitting American travelers to pay in dollars rather than euros), combined with reduced room rates.

One-Sided Affair
From the hoteliers perspective these may seem to be seductive benefits and a major motivator to get folks off the couch and heading to a plane, train or automobile. Although these goodies are not getting bodies in beds, hotel operators have closed their eyes and ears and have become a cliché, “My mind is made-up, don’t confuse me with the facts.”

Even the 2008 HVS European Hotel Transactions Report does not advise hotels to cut rates indiscriminately especially during extraordinary events suggesting “it’s wiser to use a rifle rather than a shotgun when it comes to pricing.”

Good Advice
A recent study of hoteliers indicated that 79 percent of those queried anticipated bankruptcies in 2009. With trade financing vanishing, short-term credit markets almost non-existent, and cross – border financing unavailable, it is no wonder that the Hotel Investment Forum booths were packed with lawyers representing American, European and international law firms.

Attorneys at Proskauer Rose LLP offered guidance to hotel operators and lenders of distressed hotels suggesting that they actually read the financial agreements, conduct an audit, evaluate marketing performance, and generally determine if the problem is one of faulty management or the hotel is just another fatality in a depressed market .

There is Tomorrow
People are not going to stop traveling! HVS expects to see budget and no-frill properties expand and there is still room for boutique properties. If there are any new developments they will be in the mixed-use category. HVS is also forecasting more distressed sales especially with properties that have expiring debt; however this is likely to be tempered with common sense as neither sellers nor bankers are anxious to get rid of assets in the current market.

The managing director of HVS Hodges Ward Elliott, Charles Human, believes the market will return in 2010 “…strongest in the core European markets, such as the UK, France and Germany” with “less appetite for emerging markets.”

One Bright Spot
When asked how they were dealing with the shrinkage in the global markets. Representatives of the Morocco tourism development sector queried, “What recession?” The economy of this North African nation continues to thrive, as they are not impacted by the foreign liquidity crises. The support of Morocco’s King Mohammed VI, large corporate investment and new foreign interests also helps to sustain the market.

Morocco tourism is on target for attracting ten million visitors from overseas by 2012 thanks to the diversity of Moroccan landscape: mountains, forests, deserts and beaches, combined with the sophisticated and stylish city of Marrakech. New marketing efforts focus on increasing domestic demand and stimulating foreign tourism with brand deals that include Accor, Royal Air Maroc and Iberostar and new project development in Fez and Tangier.

Unfortunately there is not much optimism for 2010. Non-revenue generating corporate travel will be cut and replaced with webcasting or teleconferencing; large meetings (accounting for 20-30 percent of meeting spend) will be fewer and less expensive. However, hotels trying to retain market share are likely to be amenable to negotiating concessions keeping occupancy up but ADR down.

Kurt Ritter, the CEO of Rezidor, has joined the “vulture crowd” and is looking for properties that are “not dead” but wounded; these hotels are likely to ultimately become solid investments. Ritter also recommends keeping the organization lean, cutting costs, making deals with suppliers, and looking at opportunities in emerging markets that include the Middle East, Africa and CIS cities.

Charles Darwin appears to continue to be correct. The strongest will survive and the others will be devoured or disappear from the landscape.

Powerful players: yes; new ideas: no
Photo by Nelson Alcantara

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