Many hoteliers are experiencing a “Charlie Sheen recovery,” said Greg Hartmann of Jones Lang LaSalle Hotels. “We’re winning. We’re doing great. But it’s all in our heads.”
Editor’s note: This article was originally posted on 11 March 2011. The article was chosen as part of Hotel News Now’s look back at 10 years of the hotel industry.
ATLANTA—While Greg Hartmann would gladly ride a recovery to improved hotel industry fundamentals, he’s also waiting for a recovery back to reality. Many hoteliers are experiencing a “Charlie Sheen recovery,” he said with a smirk, referring to the eponymous Hollywood celebrity who has run a delusional media circuit in recent weeks.
“We’re winning. We’re doing great. But it’s all in our heads,” said the executive VP of Jones Lang LaSalle Hotels.
Clearly, everything hasn’t come up roses yet, and hoteliers in many markets still are plagued by plummeting average daily rates and stagnant demand. But just how long do they have to go before they can start pushing rates? A panel of experts attempted to answer that question and more at a breakout session during the Hunter Hotel Investment Conference earlier this week.
When asked to define recovery, the panelists agreed it’s important to set the right benchmark.
“2007, which everyone thought was a great year, was sort of that myth that we’d be able to maintain that forever,” Hartmann said.
Kristi White, director of revenue optimization for TravelClick, agreed. “That was a bubble that obviously burst and exploded to some extent,” she said. “To me, the recovery is getting back to some semblance of normalcy and hoteliers actually exhibiting best practices as opposed to just taking advantage of a booming market.”
The United States hotel industry will always be at the mercy of the broader economy to a certain extent, said Naveen Kakarla, president and CEO of Hersha Hospitality Management. While there are many signs of positive momentum, challenges—including consumer confidence, housing prices and unemployment—still remain.
Add to that list limited debt financing for hotel construction and acquisitions, said James Luchars, a principal with AEW Capital Management.
“The debt markets, while they’ve opened up somewhat, are still pretty narrow in terms of their appetite for hotels,” he said.
A retreat from the boom days of 2006 and 2007 will only spell good things for the industry, White said.
“People who are buying hotels … are better financed,” she said. “They’re making better buy decisions because lenders are scrutinizing those decisions a little more than they were. …That means there’s a little more expertise going into the market, which means you’re running your hotel on a more solid market.”
When we encounter future hiccups in the market, we’ll have calmer captains at the helm, White added.
How to push rate
Of all the challenges facing hoteliers, one of the most daunting remains the inability to push rates, the panelists agreed.
The sources of the problem are many: Secondary and tertiary markets largely still have yet to experience a bounce back in demand; other properties are seeing pushback from corporate travelers and meeting planners; and others still are realizing the rates they negotiated in the depths of the downturn.
That last point should serve as a particularly crucial motivator during the next few months, White said. “We have got to get the rates up in the next six months before we go into the next negotiation series.”
White advised an incremental approach. Instead of pushing US$10 rate increases, think baby steps. Every other Friday, raise the best available rate by US$2. Continue to do so if it doesn’t impact the pace of booking.
“If a rate goes up (US)$2, you don’t notice it,” she said.
And don’t be so worried about what the “guy above you” and the “guy below you” are doing.
“What if that first guy is an idiot?” White asked attendees. “… I need to be aware of what’s going on in my competitive set, but not necessarily reacting to what’s going on.”
Business intelligence tools are important, but they’re just that—tools, she said. “We cannot allow the knowledge we gain from them to overcome your own intuitiveness about your hotel.”
At Hersha, KaKarla helps his revenue managers work through those tools and the unprecedented amount of data available to them during a weekly revenue meeting.
“We have much better information,” he said. “… What I worry about is that you’re only as good as your weakest revenue manager in a given market. You can have all the information in the world and still not get it right if you’re not thoughtful about the trends that you’re seeing.”
Kakarla advised not being as aggressive with the best available rate. Set it reasonably and work from there to yield lower rated business to build up a solid base. And no matter what approach is undertaken, he urged attendees not to panic in the face of shortened booking windows.
“Across our comp sets, there’s a bit more courage across different hotels to wait,” he said.