By Jean Francois Mourier and Bruno Perez
December 4, 2009

2009 will be forgettable - at best - for many of the nation�s hoteliers, from a disastrous first quarter to what is shaping up to be a less-than-robust recovery as 2010 fast approaches.  Although we aren�t pessimistic about the future state of the hotel industry, we also don�t believe that the New Year will bring immediate relief.  There is no miracle cure; hotels and resorts will likely grapple with depressed demand, lower rates, and anemic revPAR and occupancy figures for some time to come.

We do believe, however, that 2010 will present at least as many opportunities as challenges.  The recovery will lean favorably on innovators.  Forward thinkers, cautious optimists and those lodging enterprises that embrace a progressive philosophy will be well positioned for ongoing success.  If we�ve learned one thing from this year, it is time to move from traditional methods used in our industry to more effective, more efficient ways.   That is the only way the hotel industry can move forward. 

In the absence of a crystal ball, below are our predictions for 2010 based on how we see the state of the industry at the end of 2009. These reflect a cautious optimism for the year, and highlight some areas we see as being very important as we begin a new decade and a new dawn for hotel operations.

Less is sometimes� less

Despite the recovery, hoteliers should be prepared to do more with less this coming year.  Guests are likely to be stubbornly slow to return, at least not at the same rate enjoyed by the industry following the early-00�s recession.  Occupancy levels for the 4th quarter of 2009 are projected to come in below 2008 levels, according to PriceWaterhouse Coopers, setting the stage for a lackluster start to 2010 in terms of occupancy (the report estimates a 55.2% occupancy rate for the 2009 fiscal year, well below 2008�s 60.3%).
Considering these occupancy figures and the current credit environment, working capital (both operational cash flow and from borrowing activity) will be constrained, as demand and commercial lending continue to be elusive.  Hotels and resorts will have to optimize what they already have in 2010; in terms of guests, this means putting a premium on incremental revenue derived from existing clientele; in terms of capital and infrastructure, it means maximizing revenue per existing square foot.

Though high unemployment suggesting a strong pool of applicants, hotels� staffing levels will probably remain well below what would have been considered normal just a few years ago.  This will put pressure on managers to improve their systems, to relieve the operational burden on short staffs.

Auto, Automate, Automation

The staffing situation will highlight the importance of automation in key hotel systems.  Though hotels may be cautious about investing in systems and software in this environment, automation in specific departments � particularly the revenue management department - can increase revenue per available room and ADR, and free up revenue management staff for proactive revenue management planning.  Automation is a winning strategy for 2010.

RevPAR Resurgence

2009 was the year of salvaging occupancy, a trend best embodied by substantial discounts and rate cuts by the major chains.  In 2010, as occupancy slowly picks back up (PwC predicts a rise in occupancy across the US to 55.8% for 2010), the emphasis will be more on revPAR, than lose-lose price wars.  This follows the logic of doing more with less; the demand in the 2010 market will be such that artificial occupancy optimization measures (like deep discounting) will be unsustainable, making revPAR the metric that matters.  And with revPAR off more than 16% off last year, this will happen not a moment too soon.  Look for hotels to do all they can to bolster their revPAR figures, from improving or updating their revenue management systems to offering new ancillary services. 

Building for a Recovery

Hotels should get back to making what investments they can in revenue-generating initiatives in the New Year.   2009 was a mixed bag in terms of capital expenditures for hotels.  A slight surge in fitness center construction and renovation occurred at the end of 2008, which was both a response to guests� desires and created the potential for increased incremental revenues in the next 1-5 years.  On the other hand, Starwood scaled back its capex for the whole of 2009. For many hotels, however, the recession-created lull in occupancy created an opportunity for development for the future.  Look for this trend to continue into next year.

Supply Pipeline

Lodging supply actually grew in the third quarter of 2009 (again according to PwC, which revised its room supply prediction to 3.2% growth for 2009).  While this indicates a trend upward, there is not likely to be a substantial upsurge in new hotel construction as 2010 opens.  The pipeline of new room inventory, according to Smith Travel Research, is still intact, but only producing a trickle of new rooms coming online.  This is actually trending up, but only slowly, and it is doubtful that 2010 will see a sudden influx of new hotels (the availability of financing for new construction is unlikely to improve until the latter half of 2010 at best, further limiting inventory increases in many markets).

ADR Rising

US average daily rates are, as might be expected from the published occupancy and revPAR predictions, forecast to increase slightly in 2010. Business travel, hit particularly hard by the recession, is poised to make a comeback in 2010, though probably not to 2007 levels.  This, coupled with hotels� decreasing reliance on deep discounting to boost occupancy, will lead to higher average daily rates. Higher ADRs, along with occupancy optimization through effective revenue management, will in turn lead to improved revPAR and a recovery for the industry as a whole. 

Information is King

Efficiency seems to be the watchword of every year, but for 2010 it is an imperative, and the only way to the type of industry-wide recovery we mentioned above.  Efficiency in the internet age is particularly crucial to the effective leveraging of available information, particularly to improve rate setting and establish a competitive edge in any given market. 

Revenue management systems that use information on competitors� rates- in a geographical area, not just within a comp set- as a basis for optimal rate adjustment will continue to gain favor.  These systems will help hotels use available information to the greatest possible advantage, and help separate the leaders from the laggards in 2010.

Bit by Bit

In terms of revenue management - particularly over multiple online channels - the smallest variations in the offered rate can make the difference between optimized occupancy and revPAR and leaving money on the table.  In a slow-recovering 2010, hotels will become increasingly attuned to the benefits of real-time rate adjustment, and invest in automated systems that can optimize rates on a moment-to-moment basis.  This sort of incremental revenue enhancement will be the hallmark of innovative, efficient hotel operations that will thrive in the next 12 to 18 months, and allow them to differentiate themselves from their competitors in the only way that matters.  On the P&L.

As with all forecasts, our predictions for 2010 may be end up being different to reality.  There is still so much uncertainly pervading the global marketplace, and the lodging industry is no exception.  We may yet enter a double-dip recession, or the so-called jobless recovery may prove too tenuous to support many hotels.  We maintain, however, that the New Year will be dominated by revenue management optimization, a return to healthier occupancy and revPAR levels, and weak but not nonexistent demand. 

More than anything, we think that innovative properties and chains will eke out a considerable competitive advantage over their lagging peers. There are always opportunities, after all.  In 2010, the key will be seizing them when they present themselves.

Jennifer Rodrigues
Phone:  305.749.5342 ext. 234