FORT LAUDERDALE, FL? Industry leaders who broke from their breakneck business pace to attend the Cornell conference were met with the realization that they must plot new strategies to deal with a mature lodging market. With Wall Street turning the other cheek, unemployment at an all-time low and an increased emphasis on performance, hoteliers are faced with new challenges that leave little time for concentrating on integration of consolidated businesses, even though for many companies that remains a crucial task. Many new growth plans are representative of the changing roles of major players over the last year. For example, Bristol Hotels, which spun off non real estate assets in July of 1998, went from an owner/operator to a tenant/operator. According to Peter Kline, the company is now looking to provide value as an operator. Meanwhile, private companies such as Carlson Hospitality have gone from being passive onlookers to aggressive acquirers of hotel assets over the last six months. But no matter what the company structure, all entities are under pressure to perform well in an industry that is slowing down as it enters the ?golden years? of the cycle. ?In the summer of 1998, the consensus was that other economic emergencies would pull the U.S. into a recession. That didn?t happen. What has happened is that the U.S. has moved from a manufacturer type environment to a service environment, so that has resulted in more consistent demand growth. That means that the industry can respond very well to changes,? said Mark Lomanno of Smith Travel Research. Healthy Market To track the health of the market, Lomanno compared this lodging cycle to the last one. A key point of differentiation was the consistent demand growth for rooms? in 1998 over 300,000 more rooms were sold than in 1990, he said. In addition, hotels are getting higher RevPARs because they are more efficient. The increased level of efficiency is also evident in break-even occupancy, which has dropped every year for the last six years and is now at 54%, which means hotels don?t have to work as hard to stay profitable. Industry profits have climbed over the last six years, according to Lomanno, and are at $20 billion for 1998. Occupancy, at 64% in 1998, remains above the level it was in 1990 just before the big market crash. Demand growth was at 2.3% in 1998 versus 2% in 1990 and RevPAR was $50.29 in 1998 as opposed to $37.36 in 1990. Wall Street Steps Back Concerns that arose regarding the flight of Wall Street from the hotel industry had subsided at the Cornell conference. Public companies, while forced to tighten their belts, felt that the change mostly amounted to a renewed focus on the basics. Many are even confident that the Street will return after the industry proves that it can continue to do well, even under certain constraints. ?We have to do a better job of educating Wall Street,? said Paul Whetsell, CEO of MeriStar, a paper-clip REIT. ?[The hotel market] might not be for the high growth investor but it is a good industry for investment. Future consolidation, although it may be property by property, will bring excitement back to the industry and to Wall Street.? Whetsell said that his company, which came out of a frenzied acquisition mode last year, will go back into the market this year through joint venture partnerships. ?Wall Street puts a very high premium on performance,? said Mike Leven, president/CEO of US Franchise Systems. ?I?m positive on what it has done for the industry. I don?t see the slightest disadvantage of being a public company as long as you?re willing to put your ass on the line to perform.? Leven, who has heavily grown his Microtel and Best Inns brands over the last year, said he sees limited service as a good business for entrepreneurs. He said he plans to keep growing the flags, as long as capital is available and he continues to see enormous profits. On the flip side of public companies? capital dilemma is private companies?
