|By David Flaum, The Commercial Appeal, Memphis, Tenn.
Knight Ridder/Tribune Business News
Aug. 18, 2005 - Randy Smith admits his job is easy these days.
That's because the founder of Nashville-based Smith Travel Research has good news about the hotel business to spread.
"I don't know about heaven, but we'll be close to it," Smith, sounding like a character in Field of Dreams, told more than 100 attendees of the third annual Lodging Industry Summit held Wednesday at the Memphis Cook Convention Center.
Those sentiments were echoed by Stevan Porter, president of the Americas for InterContinental Hotels Group. "Things are pretty doggone good," Porter said.
Demand for rooms is growing rapidly (a streak of 26 straight months), supply is not, which means hotels could match or beat the peak occupancy rate of more than 64 percent set in 1995 within six to eight months.
In fact, occupancy gains should continue through 2007.
"The demand is going to be there," Smith said. "The real question is on the supply side."
About 97,000 rooms are under construction, which means 50,000 to 60,000 should be available within the next year.
"That's something the industry can easily handle," Smith said.
From the timing standpoint, the trends are not unusual, said Lou Weckstein, president of John Hammons Hotels and Resorts.
The midyears of decades tend to be good, he said. It's 2008 and 2009 when the impact of added supply may have an effect.
Meanwhile, the trends have meant rising room rates -- to an average $88.30 a night.
"We've regained control over our pricing in the past couple of years since we turned it over to the Internet providers five years ago or so," Smith said. "Whether we make money or not seems to depend on room rates."
Despite the optimism, the industry does have potential challenges -- from gasoline prices to health insurance costs to terrorist threats -- that could torpedo the string of good fortune.
"Historically, this has not been a big issue," Smith said. "If they go higher they will be a concern, but driving is still a very small part of the overall cost of a trip."
Energy, labor and insurance expenses could pinch profits.
Access to labor.
"It's very difficult to find talent," Porter said.
Managers must get employees at all levels to see they have a stake in the business and give them the authority to solve problems, he said.
Members of the company presidents' panel cited the difficulty of finding experienced general managers.
In addition to scouting the industry for that talent, The North Central Group of Madison, Wis., connects with colleges -- including the hospitality program at University of Wisconsin -- said Jonathan Bogatay, president and chief operating officer.
By 2007, everyone entering the United States will need a passport and that could dampen foreign travel, Porter said.
"China, in five to 10 years will be the biggest exporter of travelers," he said. "We've got to make it easy for them to come here."
"That is the one big issue that overrides everything and could make all these (supply, demand, occupancy, room rate) number bogus," Smith said.
HOTEL INDUSTRY TRENDS
Annual growth since 1989:
--Supply: 2.1 percent
--Demand: 1.9 percent
Last six months (annual rate):
--Supply: 0.5 percent
--Demand: 3.5 percent
--Occupancy: 2.8 percent
--Room rates: 4.8 percent
Memphis performance since 1989 (annual growth):
--Supply: 2.5 percent
--Demand: 2.3 percent
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Copyright (c) 2005, The Commercial Appeal, Memphis, Tenn.
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