LONDON--In this time of economic uncertainty, luxury chains are taking a large turn for the worse. In both the United States and the United Kingdom, occupancy and revenue per available room within this segment have seen increasingly large declines. While New York City hotels have been able to keep RevPAR positive within the luxury chain segment for a while, the city is starting to see the effects of the recession, with October seeing considerable declines.
Similar to resorts, luxury chains are seeing faster and sharper declines in occupancy and RevPAR. One of the main reasons for this is the weakening international economy and increasing strength of the dollar. This will inhibit many foreign travellers from coming into the United States, as well as travelling within the U.K. One of the reasons why New York had been able to keep slightly positive may be related to this. New York has always attracted many tourists from within the United States. Unlike resort areas where many tourists are international, New York has the benefit of many domestic travelers, both business and leisure. New York hotels are not as reliant on international travel as most other resort areas and luxury properties.
Also affecting overall performance is the issue of increases in supply. While there are many properties in the process of opening in New York, very few are luxury properties. Supply has hardly increased in the luxury market in New York for the past few years. Alternately, supply has grown rapidly in the luxury market in London and the U.K. This might contribute to the faster declines in RevPAR in these areas.
Unfortunately, New York luxury properties have begun to follow the trend taking place in the United States and United Kingdom. Although still positive through September, occupancy, average daily rate, and RevPAR have all gone into the negatives in October. Additionally, the drops in these numbers are not small. RevPAR alone dropped about 15 percent from September. Following the trend, it looks like these figures will stay negative for a while.
As with resorts, the luxury market is one of the first to suffer in times of economic uncertainty. Either travelers do not have the money to take trips in the first place or they are not willing to pay high prices for a hotel room. The only group of travelers still staying at luxury properties are those who are still very well-off in spite of the recession. Those who no longer have the disposable income and those who were spending other people’s money no longer elect to stay at luxury properties. This has resulted in a huge decline in the number of guests, resulting in lower revenue. While leisure travellers used to consider luxury worth the cost, economic decline has changed this point of view.
Another major factor contributing to the downturn in the luxury market is the reduced amount of business taking place at luxury hotels. Luxury properties depend on corporate travel, including meetings and conferences. In the short term, these properties might need to focus on other types of travelers. In the past, companies often treated the hotels as perks for employees and locations for business meetings. This helped portray a positive image for the company. As the economy takes a downturn, companies that hold meetings at luxury properties no longer are admired. It might be viewed almost as a blatant display of money. For this reason, not only are there fewer meetings taking place, but the number of business travelers staying in rooms also has reached a low. Both have had a huge effect on revenue for these properties.
More so than at other hotel chains, it will be important for operators at luxury chains to not panic and reduce room rates. The high prices for luxury properties represent the amenities and features of the property, and as such, are part of the appeal. If prices drop, the face value of the property also drops; travelers will not accept paying higher prices when the recession ends because they would then see the amenities of the property as not worth the extra money.