Monday, December 15, 2008

Hotel Occupancy in Today's Economy

The DOW is at its lowest point since ’03 and further decline seems nearly inevitable. The Big 3 automakers are sprinting from bankruptcy with three broken legs. The US unemployment rate is growing with great momentum. Alas, we are in the midst of a recession.

What has happened to hotel occupancy rates? Being a resident of New York City, the land of high hotel demand and low supply, I’m used to 95% occupancies, high turn-away rates [people denied a room], and unusually high rates. In today’s market however, I believe that hotel occupancy rates across the nation are suffering far greater than any brands would lead you or the media to believe.

I was prompted to write this entry when this morning I received an offer from my favorite Las Vegas hotel, The Wynn. Wynn Resorts Ltd. is opening their newest product, Encore, in Las Vegas on December 22nd. Encore boasts an impressive 2,034 suites to Wynn’s Las Vegas portfolio. Of course, this is in addition to Wynn Las Vegas’ 2,700 original rooms and suites. The result? Wynn Resorts now has nearly 5,000 rooms per night to sell during a recession! Who would have predicted this when the plans for Encore were approved? Sadly, no one. Anyway, my offer was for weekday nights in January for the following:

Wynn Resort Room: $129.00
Encore Resort Suite: $149.00

Bear in mind that these are special targeted rates, though the hotel is retailing these rooms for $174.00 and $199.00, respectively.

Not too long ago, Wynn was able to charge north of $500/night for their standard Resort Rooms. Right now, they are selling their brand new, week old 5-star luxury product for just $149.00 ($174.00 retail)! Although Wynn Resorts may say that they are running near full occupancies, I say no way... Encore, being the latest luxury product on the strip, should be able to open at rates 3-fold at the very least. Occupancy outlooks must be quite grim across the strip. Wynn is a great hotel, and I’d recommend it to all of my readers. I’ll be touring Encore shortly and will report on it.

Here in New York, I believe occupancy rates are even more deceiving. I see this through Opaque booking such as Priceline and Hotwire that have been mentioned in previous articles. Hotels only sell rooms through the opaque systems that they believe won’t sell at the standard rates. The opaque rates are extra low and help the hotel in the sense that the brand name is hidden until after purchase in order to allow the hotel to retail rooms at much higher prices.

One can snag a 4-star hotel room in Manhattan right now for about $100 excluding tax on the peak days. Less than a year ago, the opaque price was more than twice this! The same hotel will have retail rates of about $400/night as opposed to the $600 of a year ago. I believe that the retail rates for Manhattan should be far lower right now, but hotels are afraid to lower their prices too much fearing that they may never again be able to revert back to the $600/night rates. With that in mind, the big 5-star hotels are still floating around $1,000/night -- though they cater to a very different demand segment.

I recently spoke with the Front Office Manager of a luxury boutique 4-star property in SoHo (name to be withheld). I was told that occupancy rates are absolutely solid and the hotel is always packed. When I asked if they participated in opaque booking, I was told that they had just started a week prior to my interview. For your information -- hotels use opaque booking when they will have a lot of empty rooms. Thus, this hotel was not always full like I was led to believe.

Next, last week I purchased a room at a major 4-star midtown hotel for $100 on Priceline. I then called up a manager to inquire about occupancy rates on the very given day and was told that the hotel was “full as always.” The fact is... the hotel must have been pretty vacant for me to get the $100 opaque inventory.

Long story short, I believe that hotels are making a conscious effort to lead people to believe that they are full, though occupancy rates are severely hurt by the economy. With this in mind, there are some great deals out there IF YOU DO YOUR RESEARCH. As stated, there are many hotels that are keeping their rates up and assumable trying to ride out the recession in my opinion.

My assumption is that the true numbers are far more grim than the public actually believes. After all, travel is one of the first dispensable expenditures during a budget cut of personal or corporate proportion.

Written By:

Alex Early
Founder & President
The Early Air Way, LLC

1 comment:

Anonymous said...

Going by the latest reports regarding the hotels in Bangalore, the hospitality industry of the city is about to see serious growth and development in the coming times. Bangalore was one of the cities that had seen unprecedented growth and development owing to the boom of the IT sector and before long it became one of the most important IT hubs of not only India but also of the world. As such the number of business travelers to Bangalore also increased and hence important names in the hospitality industry opened up exclusive business hotels in Bangalore. Soon Bangalore became one of the most important commercial hubs of India and hence it saw rapid infrastructural growth and development. However, following the economic slump, not only the IT sector and overall business suffered, but also the hospitality sector received setback. Most obviously the occupancy rates for the budget hotels in Bangalore declined. However, the recent reports predict that India is still the place to be as far as development from all ends in concerned. Business will soon be bustling in India and the hospitality industry has also somewhat overcome the slump and the reports predicting growth have come as a breather.