Tightening the belt

A down economy almost always pushes up the economy segment in a service industry. That certainly appears to be the case with the airline industry as fliers opt for a seat class termed by some airlines as "premium economy". The notion of premium, though, is stretched as the seats, in some cases, offer a mere 5" extra in "pitch" which is the distance between rows. In many instances, the seats are barely recline anymore than a regular coach seat and the service standards, such as they are, seldom exceed that of coach.  Nevertheless, that has sparked interest among business travelers and several airlines report erstwhile business travelers taking up cabin space in that category.

The erosion in premium travel has naturally affected the hotel industry as well with customers looking for lower rates but, unlike the airline industry, hotels do not have the luxury of trimming offerings to match the decline in rate. That has resulted in severe rate erosion in the upscale segment with the New York Times reporting that some boutique hotels offering rates comparable to economy brands. The Times article notes that the "Honua Kai Resort & Spa, scheduled to open Jan. 28, is offering rooms from $195 — 50 percent off published rates. Near Miami,
the Blue, a 240-room resort that opened in September, has extended its
opening price of $189 a night through April, down from listed rates of
$360. And the Nines, a new Starwood Luxury Collection property in Portland, Ore., is offering rooms for an attention-getting $99 a night for 99 days through mid-April".

The flood of new hotel rooms in principal cities at the trough of economic activity has not helped. The Times article notes that Phoenix, AZ, saw 36 new hotels in the past 12 months resulting in a 10% drop in hotel occupancy levels. Developers unleashed hotel inventory in New York City as well with the "most openings for the 12 months ending in November" as 54 new hotels added nearly 8000 rooms kicking Manhattan's inventory up by 10%.

The Chicago Tribune has a report along the same lines saying that "Hotel operators have seen room reservations fall drastically as business travelers and vacationers cut down on trips". Once again, rate erosion is evident from the article which notes that "many hotels will give travelers a break by lowering prices or offering
incentives, such as free meals, in hope of enticing more business".

But as in the aftermath of 9/11, many travelers seem to be shunning the lux for the staid. Another NYT article notes that hotel guests seem to be going for "budget hotels" with major national brand names. The depth of this downturn may well cause the penchant for boutiques amongst developers and owners to be curtailed.

Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.