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Hotel Industry to White House: We are not the Enemy

The vice president of Smith Travel Research took the Obama administration to task at a hotel investment conference on Monday, saying that criticism of finance industry groups for holding meetings at upscale hotels and resorts has had a chilling effect on the industry.

The hospitality industry already is struggling with a slowdown in business and leisure travel, and an accompanying drop in revenue related to the global recession, Jan Freitag told hoteliers and investors at the 21st annual Hunter Hotel Investment Conference at the Atlanta Marriott Marquis Hotel.

American International Group (AIG) and other recipients of federal bailout funds have been criticized for holding meetings at lavish resorts. Last fall, senior executives of AIG met at the St. Regis Resort in Monarch Beach in Southern California, running up a tab of more than $443,000. The charges included about $30,000 for spa and golf sessions. The meeting took place just days after the federal government handed over $85 billion of taxpayer funds to rescue the troubled insurance giant. Other companies receiving bailout funds have been criticized for holding similar gatherings.

After the AIG meeting was publicized in October, a furor erupted, as members of Congress and the administration vented their anger over the expense. Within the hotel industry, the effect was immediate, Freitag says. The growth rate for luxury group stays went negative, and group demand plunged.

“It’s going to be interesting to see if one hotel making $440,000 is going to cost the industry $440 million. I think we’re going to see the impact of this invoice for some time to come,” Freitag said, displaying a copy of the St. Regis invoice for AIG. Other groups throughout the country apparently changed their meeting plans following the controversy, as demand for group space fell.

“I hope that the president and the administration will provide a different kind of stimulus to our industry, which is that they should stop this witch hunt on meetings and conventions,” the statistician said. “These are venues where people come, shake hands, break bread, learn, and get to know each other, and hopefully trust to go further and invest.”

The past several months have been difficult for hoteliers, particularly since the last quarter of 2008. “Post Labor Day, the bottom fell out on the demand side, and occupancy went negative by 7.5% or 8%,” Freitag said. Luxury chains were hurt particularly hard.

The remainder of 2009 could be bleak as well. Smith Travel expects revenue per available room to decline by 6% before turning slightly positive in 2010. Occupancy rates also are expected to turn slightly positive next year, following a second year of decreases in 2009. Occupancy rates currently are running below 60%, and demand has fallen just as supply is ramping up.

The market with the greatest number of rooms coming on line is Las Vegas, which has nearly 12,000 rooms under construction. New York has more than 11,000 rooms under construction and Washington, D.C., about 6,200 rooms.

Despite its troubles, the hospitality industry is faring better than a number of others, such as the airline industry, which has long-term cumulative losses, Freitag noted. “We are a lot better off. This is not an industry in need of a bailout. Yes, we’re going to make a little less money, but we’re still going to have a couple billion dollars in profits this year.”

Smith Travel projects that the country’s gross domestic product growth will be positive in the fourth quarter of 2009, a welcome change from the same period last year, when “the numbers were terrible,” Freitag said. “Maybe the worst is over. Stay tuned.”

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