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Hoteliers Strategize on Rates as Revenue Declines

Bharat Patel got right to the point about three minutes into the opening general session of the second annual Midwest Lodging Investors Summit earlier this week. Rates are still skidding, according to the chairman and CEO of the Sun Group of Companies. “The rate we gained in the last six to seven years, we lost in the last six months.”

Smith Travel Research projects that revenue per available room (RevPAR) will fall 17.1 percent this year. In the face of such declines, brand company executives and owners kicked off a lively and often heated discussion about the state of the industry that carried throughout the two-day Chicago event presented by Lodging Hospitality and Penton’s Commercial Real Estate Group.

Titled “Owners Face Off with the Brands”—and dubbed “Let There Be Blood” by conference host Don Landry—the panel started off in agreement that hotel companies have helped owners with programs to reduce costs and delays in capital improvement projects, but things escalated when the topic turned to rates.

“Hold rates, hold rates, hold rates,” said Nancy Johnson, chief development officer for Carlson Hotels. “That message needs to be pounded again." Even though competitors may reduce their rates, companies need to stand firm, she said. “We need to suck it up, take care of our customers, hold rates and provide good service and we’ll all be better in the long run.”

Customer wields clout

Walter Isenberg, president and CEO of Sage Hospitality Resources, agreed in theory, but said the reality wasn’t as simple. “If we got all of my competitors at the same table and agreed to price fix—which would be totally illegal—the first guy to walk out of the room and get a call for 10,000 rooms for a $10 discount—he’d do that in a New York minute. The power is with the customer and that’s reality.”

With RevPAR continuing to plummet, the discussion turned to cost containment. Patel suggested replacing individually packaged bathroom amenities with dispensers and educating consumers on the environmental impact of the move, but he had a hard time getting a response from the brand company executives.

Wayne Goldberg, president and CEO of La Quinta, said the challenge would be with guests’ concerns over sanitation.

Hunker down, executive says

“The sky is falling,” said Jed Heller, president of The Providence Group, a management company, during the second general session discussing turnaround tactics. “We don’t want bells and whistle programs, we need to hunker down and get back to basics.”

Christopher Knable, the principal of Elysian Hotels, said now was the time to look at labor. “We’ve got a great excuse: The world is on fire,” he said. “Like with all our layers, we’ve got one person for every job. We need to cross train a flexible staff.”

At the session on brands, as in other opening events of the summit, it was clear that there were far more questions than answers.

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