Context matters: HSMAI members on signs of a downturn
Context matters: HSMAI members on signs of a downturn
12 NOVEMBER 2019 9:16 AM

During a recent HSMAI think tank, sales and marketing experts questioned whether the industry is approaching a recession and shared lessons learned from the last downturn.

DALLAS—Where the industry stands in terms of a downturn remains a question for many, and sales and marketing experts are no exception.

During a recent think tank held in conjunction with the Hospitality Sales and Marketing Association International’s Sales Leader Forum near Dallas, Allison Handy, SVP of sales, marketing and revenue optimization at Prism Hotels & Resorts, posed this question: “Is our industry creating its own recession?”

“Is fear creating poor results in some markets, specifically as it relates to rate as they’re grouping up, but at lower rates, dealing contracts at lower rates, creating a rate decline in particular markets where occupancy hasn’t shown that there is any sign?” she asked.

Jeff Weggeman, SVP of sales, marketing and e-commerce at Pyramid Hotel Group, agreed with Handy, adding that hoteliers need to “lean forward (and) be bullish until you see signals that tell you otherwise.”

Marriott’s impact
Marriott International announced in August 2018 that it would transfer SPG members to the Marriott loyalty system, known internally as LD1. Many panelists agreed this move created waves throughout the industry that were felt in 2019 and that will continue to have an impact.

Markets with a lot of combined Starwood and Marriott supply have run into issues dealing with competition, redemption rates and market share, leaving some hotels to suffer losses. Lori Kiel, chief revenue and marketing officer for The Kessler Collection, cited Savannah, Georgia, as an example.

She shared an example of a hotel in that market that saw a lot of loyalty redemption revenue and had been able to achieve high loyalty compensation rates after achieving 96% occupancy.

“That was a sweet ADR in those cases that was $300-plus,” she said. “Now that has declined dramatically because of that influx of Marriott and SPG supply and the fact that SPG is now all on the same platform, and so these two hotels are now having to find a new channel and new demand generator to replace redemption, and you cannot find it at that same rate.”

As a result, she said, numbers can make it look like group business is started to wane for some hotels when in reality hotels are going after each other’s groups to make up the shortfall.

What’s driving the cycle?
Handy asked the group another question: “Is the issue in the industry really economy-driven or supply-driven?”

She said the industry often looks to the economy to indicate when a recession is near, but new supply also can play a role.

Many events play a role in cycle disruption, the panelists agreed.

Lovell Casiero, SVP of sales and marketing at PM Hotel Group, said the Marriott-Starwood transformation is one thing affecting Q1 2020, but other disruptors, such as the government shutdown earlier in 2019, could “create a false sense of security” going into the new year.

“We were going through the transformation with Starwood legacy up to Marriott, which was creating a lot of disruption in a lot of hotels,” she said. “And I think for the most part, a lot of that has leveled out, although it does create a more competitive playing field.”

Kiel added performance might look positive going into the new year when “you start to layer year over year,” but it’s not.

“We really need a hospitality historian that plays this out for us to remind us, ‘Remember your September looked so great because you had a hurricane last year.’ Well this is now Marriott, it’s hurricanes, it’s SPG, it’s government shutdown—you need somebody that keeps records for us. A Ben Franklin of the group,” she said.

Lessons learned
While the industry might not be headed toward a recession yet, the speakers shared what they learned from the last one.

This go around seems like downturn conditions depend on the market, said Chris Kenney, SVP of sales and marketing at CoralTree Hospitality.

“Each (market) has its own story,” he said. “What’s happening in Nashville is different than what’s happening in others, but … I think it is individual marketplaces that are experiencing different things.”

There are unique markets and neighborhoods within markets that cause disruption, he added.

1 Comment

  • Michael Collins December 10, 2019 7:31 AM Reply

    Based upon my 40+ years in the industry, the key lesson that hoteliers should learn from past downturns is that dropping rate will not offset a recessionary drop in demand. This article suggests that rates are already softening in anticipation of a potential recession in some markets despite any concrete evidence of a recession. STR historical evidence makes it clear that it takes years for the ADR to recover within a market once the rate cutting begins-- costing hotels millions of dollars that can never be recovered!

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