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Hotel Room Rates in the Metro Orlando Area Dip -- 1st Time Since 2003

By Sara K. Clarke, The Orlando Sentinel, Fla.McClatchy-Tribune Regional News

Aug. 26, 2008 - Hotels of all kinds trimmed their room rates in Metro Orlando last month, something that hasn't happened in the local market in almost five years.

Concerned about a soft U.S. economy and its effect on travelers, hoteliers reduced their average room rate 1.3 percent in July, according to the latest survey by Smith Travel Research, which doesn't include Walt Disney World hotels.

All sectors of the lodging business, from budget motels to luxury resorts, reported lower prices compared with the same month last year. Economy hotels discounted the most, slicing 7 percent from their average daily rate. Luxury hotels shaved the least, with a 1.1 percent average decline.

The last time Orlando-area hotels in all price ranges reduced their average room rate in the same month: October 2003.

Hotel occupancy was also down in July, by 2.2 percent from a year earlier. Combining that with the lower average room rate generated a 3.4 percent decline in revenue per available room, a key industry measure.

Year to date, the metro area's average occupancy rate is down 1.1 percent from the same period last year.

The region's lodging industry has been concerned for months about a soft third quarter, so discounts and an increase in related promotions come as no surprise, said Rich Maladecki, president of the Central Florida Hotel & Lodging Association.

"I suspect that we're going to continue to see that, because of the competition we have in our market and the concerns we have with our national economy," Maladecki said.

The north Orlando submarket, which serves mainly business travelers, reported an 8.6 percent decline in occupancy in July. In the budget-minded west Kissimmee submarket, average occupancy dropped 12.4 percent, even as hotels charged 5.2 percent less on average for their rooms than they did a year ago.

Discounts send a message of affordability to cash-strapped travelers, but discounts can be controversial within the business, said Scott Smith, a lodging instructor with the University of Central Florida's Rosen College of Hospitality Management.

Research has shown that reducing rates will boost business -- but not enough to make up for the lost revenue. And if it goes on for too long, discounting can affect the public's perceived value of the service or product.

"It takes, sometimes, years to get back to the level you were" before the discounting began, Smith said.

For that reason, the industry prefers to improve the value of a hotel stay with extras such as free breakfast or an added night at no charge rather than reduce room prices. But market realities sometimes leave no choice.

"If you're the only one trying to hold rate integrity while everyone around you is discounting, you're going to get slaughtered," Smith said. "In real life, in practice, you have to answer to an owner who wants to know what you're doing to put heads in beds. And the quickest and easiest way to do it is discounting."

Sara K. Clarke can be reached at skclarke@orlandosentinel.com or 407-420-5664.

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Copyright (c) 2008, The Orlando Sentinel, Fla.

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