RSBA & Associates 
Hospitality Consulting Services
400 Spear Street, Suite 106
San Francisco, CA 94105
Email: [email protected]
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 Unreliable Market Trends Yield
an Uncertain Direction
by Rick Swig, October 2002

As the last quarter of 2002 comes to an end, some Bob Dylan lyrics provide an apt summary: “Too much confusion is making itself clear”.  This has been a year when traditional metrics to measure trends, whether transactional or operational, were often not adequate to provide clear direction.

Trailing twelve and even twenty four month trends have become suspect, as two years ago hotel revenue was soaring to new levels, while in the last twelve months the setbacks in REVPAR levels have been some of the most crushing in modern history.  In retrospect both the growth and the downturn may have been due to aberrations.

As Wall Street stock pricing has reflected since the beginning of the year, the prosperity, which fueled travel and related expenditures, was not based on solid corporate principles.  Thus, the boom was really like a fireworks show, which looked great during its presentation, but quickly faded and became a memory.  Thus, the corporate travel boom, which fueled the revenue expansion, may never have had any foundation to sustain for the long term.

One year after one of this nation’s most traumatic tragedies there are questions as to the extent of the impact from that fateful day.  Certainly, there was incredible impact on travel in the three to four months after September 11, but how much of that downturn was inevitable, as a result of a deteriorating economy.  The decline was probably accelerated by the terrible event, and a correction was probably eventual, but the question remains how far the slide would have been and how long would it have taken to reach the bottom without the added ordeal.

In the midst of the surge of 1999 and 2000 hotel values were repositioned and further supply expansion was planned to capture the momentum of the period.  Two years later most supply expansion has been slowed, while valuation of hotels has become ambiguous in consideration of the recent revenue roller coaster ride.  Two years ago, the disconnect between sellers and buyers was focused on seller pricing based on peak and future peak performance with buyers trying to blend in some of the more austere historical income results.  Now, buyers are trying to purchase hotel on today’s trailing twelve month performance, while sellers are pointing backward to exhibit potential financial achievement.  With economic, social, and political uncertainty still apparent, it becomes bewildering, as to what trend to believe and what price to pay.

The turmoil carries over to the operations of hotels as well.  The same forces have contributed to the uncertainty and disappointment of individual market and hotel performance in 2002.  Through June, 2002, there were nearly a dozen major markets year over year REVPAR performance shortfalls of over 10%.  In the case of Miami, San Francisco, and Boston those shortfalls were between 15% and 30%.  Even more surreal becomes the performance of certain markets over last 24 months, where decreases are as extreme as 40%.
Individual customer segment patterns have been unpredictable as well.  In the last twelve months traditional patterns for market segment behavior have shifted significantly, which has made forecasting demand a formidable task.  This has impacted the ability to yield guest room rates effectively, as well as anticipated revenue production. Important jolts have been felt in the Commercial and Leisure transient segments, as well as the Conference group market.

The combination of restricted corporate travel due to economic issues and the hassle of air travel have undermined the productivity of the Commercial transient segment.  This trend began well before the 9/11 events, which simply acted as a catalyst for a faster decline.  Established patterns of high occupancy on Mondays and Thursdays with almost guaranteed sell out nights on Tuesday and Wednesday nights have disappeared, along with the ability for revenue managers to exact premium rates with minimum lengths of stay from customers virtually at will.  Today, hotels in previously high demand markets are discounting the same mid-week periods, if only to poach market share from their competitors, much less to sell out.

A changing economy, air transportation problems, and fear changed Leisure transient habits during 2002.  Predictable patterns for forecasting demand during weekend, seasonal, and holiday travel periods are now memories.  Additionally, there have been modifications in the way customers are now shopping for and reserving their overnight stays, which have also disrupted forecasting and anticipated revenue productivity.

The internet wholesaler has become a major factor, as a direct provider to travelers.  Customers have quickly discovered bargains, which often fall well below the advertised price offered from hotels directly.  While discovering new ways to entice the public to buy overnight stays, hotel operators have also lost control of or at least severely complicated the management of their valuable inventory.  This has further positioned guestrooms as price driven commodities.  Managing these new channels will be an important new discipline into 2003, as without better strategy and regulation there is further risk of hotels competing with themselves and undermining their already fragile pricing tiers.

The Conference group segment was not immune to impact in the last twelve months. A disintegrated economy and resulting corporate austerity programs caused historically predictable meetings demand from long time corporate sources to deteriorate quickly.  Historical patterns for citywide and other discretionary large conventions also changed, as attendance levels did not always meet market aspirations.

Whether related to hotel transactions or operations, traditional behavior molds and metrics have simultaneously been recast or broken due to evolving social, economic or political conditions, customer behaviors, and technology.  As a result, the methods of developing strategies and tactics to transact hotel assets or enhance individual hotel profitability require continual review and revision with few exceptions.  Yes, the confusion is clear, but it is also the time when opportunities are created.

RSBA & Associates
400 Spear Street, Suite 106
San Francisco, CA 94105
E:mail:   [email protected]
Tel:  (415) 541-7722
Fax: (415) 541-5333
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