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The Occupancy Rate for Kansas City Area's 29,000 Rooms Was
 an Anemic 56% in 2003; 1st Qtr 2004 Occupancy
 of 51% Projects to 58% for the Year
By Rick Alm, The Kansas City Star, Mo.
Knight Ridder/Tribune Business News

Jun. 8, 2004 - Kansas City's troubled lodging industry is in recovery and doing well so far in 2004.

A modest first-quarter bounce in the percentage of area hotel rooms occupied was very good news, said industry consultant Jeff Marvel of Horwath Horizon Hospitality Advisors of Kansas City.

"It was only two points, but that was a pretty good jump," Marvel said. "It's the best we've seen since the late '90s."

For all of 2003, Marvel charted the occupancy rate for the area's 29,000 rooms at an anemic 56 percent, the local hotel industry's worst year in memory.

Occupancy traditionally lags in the first quarter, and that was true last year, when it was a dismal 48.7 percent. This year's 51 percent first-quarter rate conservatively projects to 58 percent occupancy for the year. And Marvel said he was cautiously optimistic that even stronger numbers during the traditional spring-to-fall travel season would bump the market to a 60 percent to 62 percent annual performance.

"The first quarter is always the weakest," he said. "I think it's going to continue to accelerate."

If so, a yearly average in the low 60s would represent a 4 or 5 percentage-point increase in the occupancy rate, and "that's getting us close," Marvel said, to the market's normal occupancy rate around 65 percent.

Nationally, the American Hotel & Lodging Association cites first-quarter research by Smith Travel Research that showed occupancy rates up 4.4 percent over 2003, to 59.2 percent. Association experts currently forecast a national occupancy rate of 60.8 percent in 2004.

Kansas City's record annual occupancy rate of 70.8 percent in 1996 came amid a booming economy and, significantly, ahead of a wave of new hotel construction. New room supply has been coming online ever since.

When the economy began to weaken in 2000, business travel was an early victim. Things only got worse in 2001, and then the Sept. 11, 2001, terrorist attacks triggered one of the worst travel depressions in history.

The crisis in Kansas City peaked in 2003, when all that increased supply slammed headlong into sharply decreased demand, pushing occupancy rates to historic lows.

Now, with the growth spurt over and the area's current inventory rapidly approaching 30,000 rooms, Marvel forecasts annualized supply growth over the next few years at a modest 0.5 percent.

That tracks slightly behind the estimate by Hotel Online for a nationwide net supply gain of around 1.2 percent this year and 1.3 percent in 2005.

Locally, around a half-dozen new hotels are in the pipeline, including a Holiday Inn linked to the KCI Expo Center and expansion of Harrah's North Kansas City Casino & Hotel . The Chateau Avalon near Kansas Speedway opened its doors last week.

If first-quarter trends hold and if travelers hit the road as expected in even greater numbers this summer, Marvel said annualized demand growth of 5 percent would significantly outstrip supply growth and make up lost ground.

"If this recovery is like the mid-'90s, demand will bound ahead," he said. It already is happening with April occupancy numbers outperforming the first quarter.

The trends also bode well for civic projects such as the Bartle Hall convention center expansion and proposed downtown arena, which are heavily dependent on hotel tax receipts that have fallen precipitously in recent years.

Marvel noted upswings in other economic indicators that feed tourism, including employment gains in the region and increased air travel through Kansas City International Airport .

Meanwhile the Travel Industry Association of America recently forecast a 3.2 percent bump in 2004 summer travel.

In fact, leisure spending nationwide is on the rise. Merrill Lynch analyst David W. Anders recently reported that "robust" first quarter sales and earnings per share for selected gaming, lodging and leisure companies "were nearly too good to be true" with some posting sales increases as high as 11 percent.

"We believe that tax refunds and significant gains from refinancing likely bolstered consumption of leisure," Anders said.

Steve Olson, president and chief executive of Leawood-based Leisure Hotels & Resorts, said he saw a difference this year.

The company's 2003 performance was flat. But Olson said, "We were ecstatic with that compared to the rest of the country. We held our own," he said of the 27 properties the company manages in five states, including seven hotels in the Kansas City area and Branson.

Late last year, Olson said, the company began discounting room prices to drive incremental business, and it worked.

"Things started to improve in November and December." With a strong first quarter "we've regained everything we lost," said Olson. "For May we're actually exceeding our budget."

Good times -- or at least better ones -- also bring higher prices for consumers, however.

Marvel's first-quarter research calculated the average daily room rate in the Kansas City area at $71.17 -- its highest level since at least 1989.

Nationally the daily rate was $83.12 in 2003, and the experts peg it to climb to $85.11 this year.

The lodging industry's standard measure of profitability is revenue per available room, which melds room prices with occupancy into one number.

The average figure for Kansas City was $36.32 for the first quarter. That was up 8 percent over 2003, which was down an alarming 14 percent from 2002.

The local industry still has a long climb back to 1998's record revenue per available room of $42.19.

It is no sure thing the road back will be smooth.

"The next hurdle will be gas prices," Olson said.

Experts appearing at the American Hotel & Lodging Association's annual summit in May agreed. A survey released at that industry gathering found 37 percent of travelers now rank affordability ahead of security concerns as a factor in their travel decisions.

Travel companies already are responding to the sharp rise in fuel prices with summer travel deals. Internet discounter, for instance, is offering a gas-tank fillup worth up to $30 for any prepaid booking of three nights or more.

Kansas, meanwhile, is marketing itself to bargain hunters this summer. State travel division Director Scott Allegrucci was in Kansas City last week to promote the AAA motor club's 2004 survey that found Kansas to be the nation's least expensive vacation state this year, based on average prices for lodging and food.

AAA said the daily cost for a family of four traveling in Kansas worked out to $169.12 a day compared with the national average of $235.01.

Missouri was ranked as the 13th most-affordable state at an average daily cost of 197.93.

The most costly state was Hawaii, at $497.54 a day, followed by the District of Columbia at $373.79 and Rhode Island at $305.92.

The survey was based on published prices for more than 52,000 establishments in AAA's regional TourBook guides.

The Midwest fared extraordinarily well in that survey, and that bodes well for summer auto travel throughout the region. After No. 1 Kansas, Nebraska was ranked at No. 3, Arkansas at No. 4, Oklahoma at No. 5, and Iowa at No. 6. Illinois was No. 35.

It is no secret that appealing to highway travelers is a key to tourism growth and the happy sight of "no vacancy" signs at local hotels.

Research presented at the association summit found that 92 percent of Americans took at least one leisure trip in 2003, and 81 percent traveled by private auto.

-----To see more of The Kansas City Star, or to subscribe to the newspaper, go to

(c) 2004, The Kansas City Star, Mo. Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail ROOM, IACI,

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