Stabilizing Room Rates Bode Well for Robust Hotel Recovery, Say Experts at ALIS Conference

Increasing consumer confidence in the safety of air travel is heralding good news for the traumatized lodging sector, according to forecasters at the Americas Lodging Investment Summit (ALIS) taking place in Los Angeles on Monday. Industry analysts report small but significant increases in demand and occupancy levels in America, Europe and the Asia-Pacific market. The national hotel occupancy rate was 63.8% in 2003. That will rise to 67% this year and to 68.4% in 2005, according to Mark Woodworth, executive vice president of PKF Consulting. Reports from the airline industry that the passenger load in December had recovered to pre 9-11 levels "might be the indicator that will move the industry ahead to a much more robust economy," says Larry Shupnick, senior vice president of development and acquisition for AmeriStar Hospitality Corp. Meanwhile, a sharp slowdown in new construction promises to stabilize room rates and even push them higher later this decade. Currently, 70,000 hotel rooms are under construction nationally, or "less than half (the level) of two years ago, so supply looks great and demand is beginning to perk up," says Jon Kline, executive vice president of Sunstone Hotel Investors LLC.

In the U.S., the slowdown in hotel construction promises a tightening supply and rising room rates in the future, according to Randell Smith, CEO of Smith Travel Research. The good news is that current demand growth has exceeded supply growth for the first time since 1996. "Everything we hear at this point says we are at the right point to get back to solid growth for the industry," Smith says.

While most gains for the hospitality industry were modest, any improvement in performance is noteworthy, given the "quite remarkable convergence of bad factors" in 2003, including the Iraq war, terrorist attacks in Bali, and the SARS scare in Asia, says Martin Rust, management partner in hotels and resorts for Deloitte & Touche.

The outlook isn’t so bright on for the international hotel market "While consumer confidence is improving" in Europe, the performance of the European hotel industry is "still in negative territory," Rust says. European hotels showed that RevPAR (revenue per available room) was down 25% for the year. Only four major markets — Dublin, Gothenburg, Helsinki and Vienna — showed RevPAR growth, and only Vienna reported RevPAR higher than 1%. The Olympic Games in Athens later this year will likely improve the overall picture, Rust adds.

In the Asia-Pacific market, Rust cites a "reversal of dramatic price reductions," even though "the direction of occupancy is still going backwards." For the Middle East, which has been low on most travel agendas except for Kuwait, Rust predicted occupancy growth in early 2004.

"The good news is that the U.S. and the Middle East are at the low points in the cycle." As for the full recovery of occupancy rates and RevPAR, Rust adds, "do not expect to see (record-year) numbers until 2006."

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