Preliminary Second Quarter, June Stats Look Bleak For Hotels

NEW YORK— For months, analysts have claimed that the lodging industry would rebound in the second half of this year, and though earnings reports in the latter half of 2001 will most likely be better than the first, they will still fall far short of last year’s record-high statistics. “We’re still staying that the second half of this year will be stronger than first, but the industry will still be down from last year,” said Bjorn Hanson, hospitality analyst for PriceWaterhouseCoopers. “The steepness of decline won’t diminish until Labor Day, with June being an especially disappointing month.” Mark Mutkoski, managing director at Deutsche Bank Alex. Brown, disagreed, stating that, “the first quarter will be better than any of the numbers we’ll see for the rest of the year.” Mutkoski agreed that the second quarter will prove to be the worst quarter for the lodging industry, and added that he feels May will mark the low point for hotel RevPAR and occupancy. “The June numbers don’t look quite as bad as May,” he said. “The second half of June was better than the first. May will be the weakest month.” In Smith Travel Research’s (STR) preliminary June 2001 figures for the U.S. lodging industry, hotel RevPAR dipped 1% to 3% in June, compared to the 4.4% decline in May. Upper upscale hotels were the hardest hit in June with declines of 3% to 5% in occupancy, and RevPAR falling 5% to 7% compared to last year. Upscale hotels were flat to down 2% in both occupancy and RevPAR for the month. However midscale properties without F&B showed a sharp decline in June similar to the luxury hotels, with occupancy dropping 3% to 5% and RevPAR falling 2% to 4%. Both midscale without F&B and economy hotels saw occupancy drops in the range of 1% to 3% for the month, with RevPAR remaining flat to down 2%. The biggest “surprise,” for both the month and the second quarter, was the low earnings from upper upscale properties, according to Hanson. In addition to the economy generating more price-conscious consumers, a number of other factors may have contributed to the segment’s decline. “When occupancy is higher at deluxe hotels, the proportions of suites sold go up. Suites are always sold last, because they cost almost twice the rate of a standard room. This year the highest-priced suites aren’t selling, and that has a strong affect on their earnings,” he said. Hanson added that a number of large corporations have limited the caliber of hotels where their executives stay, and in some cases have banned stays at the ultra-luxury, five-star hotels. “Executives are no longer staying at these [five-star] hotels or they are negotiating lower rates,” he said. “When employees are being laid off while executives are staying at the most expensive hotels in the city, it looks bad.” However, Hanson noted that amount of business travelers ‘trading down’ from one caliber hotel to another, is very small. “Not often are travelers shifting down their hotel. They’re still staying at the same hotels, they’re just not traveling as often,” he said. “Some are trading down, but not enough to make an impact on the other segments.” Mutkoski, however, stated that though most executives are not trading down their hotel stays, other employees are. “Middle managers are definitely trading down, and properties, like Courtyard by Marriott, are certainly going after their business,” he said. He did note that the decline in ADR is having an effect on the ‘trading down’ theory. “Room rates at high-end hotels are decreasing, and getting closer to that of middle market hotels. As times get tougher the room rates get closer,” he added. Both Hanson and Mutkoski agreed that the second quarter will definitely prove