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| Offering their views from the top, from left to right: Andy Alexander, Mark Laport, Roger Bloss, Jim Abrahamson and David Kong. |
CHICAGO—The outlook is slowly clearing but the environment remains challenging, hotels leaders suggested at the start of the fifth annual Midwest Lodging Investors Summit.
During a presentation moderated by HotelNewsNow.com Editorial Director and STR VP Jeff Higley, the heads of various brands expressed pleasure at this year’s occupancy levels, suggested they will push for rate increases but didn’t foresee a return to profitability in the immediate future.
“I think we’re going to see continued price increases,” Interstate Hotels & Resorts CEO Jim Abrahamson said. “We never had a brand problem. It’s always been (an issue of) supply and the lack of being able to harness price.”
Wayne Goldberg, president and CEO of La Quinta Inns & Suites, laid partial blame on seasonal promotions and online travel agencies. And Roger Bloss, founder, president and CEO of Vantage Hospitality Group, suggested advertising lures such as offering a $75 Visa card for a two-night Holiday Inn Express stay keeps rates down.
“We get on our soapbox and talk about the OTAs and things that are diluting our business,” Goldberg said. “We do a lot of things that dilute profitability as a brand … We need to think more like owners and operators than brands.”
Andy Alexander, president of Red Roof Inn, noted the investment the brand has made in renovating approximately 30% of its portfolio is paying off in rate increases up to 41% in those properties. Rate integrity is key, he said.
“Discounts are probably the No. 1 area we’re attacking,” he said.
Zeroing in on the Midwest
While all were pleased by their brand performance during the first two quarters, the outlook for the rest of 2012 was less sanguine.
Despite expressing overall optimism, Best Western International President and CEO David Kong said the second half won’t be as robust as the first. But he also noted Best Western’s institution of a tiered system in 2011 effectively upgraded the brand overall—and gave potential developers incentive to build upscale hotels that command a rate premium of $20 more than midscale hotels.
Kong’s advice to hotel entrepreneurs: Figure out how to make your property stand out because there’s so much competition today.
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| Despite expressing overall optimism, Best Western’s David Kong said the second half won’t be as robust as the first. |
In a series of slides from STR, the parent company of HotelNewsNow.com, Higley showed that hotels in the Midwest are doing well. Occupancy this year is up in all major cities in the region except Minneapolis; revenue per available room and average daily rate are up region-wide (Indianapolis is a particularly hot market); and supply will be flat for the next 12 months. Downtown Chicago is the best-performing area in the Chicago market, according to STR.
“We loved Chicago this year,” Alexander said, citing a stellar performance by the Red Roof Inn on East Ontario Street, which posted 10% increases in rate and occupancy during the first two quarters.
Goldberg, too, touted the Windy City, noting the chain’s downtown property, a conversion that broke through financial storm clouds, is doing far better than projected.
The other top 25 U.S. markets continue to set the pace. “Urban select service is probably the best place to be,” Abrahamson said. Kong concurred, calling upper midscale and upscale the sweet spots.
Concord Hospitality’s co-founder, president and CEO Mark Laport, noted “niche plays” can be made in urban markets, and Vantage’s Bloss observed that drivable destinations are particularly attractive for hotel development.
Segment obsolescence and technology
Abrahamson said Generation Y and Generation X travelers gravitate toward distinctive urban properties with unusual social spaces and impeccable technology. Such spaces and technology, along with better entertainment offerings, should drive new hotel development, Abrahamson suggested.
Mobile devices will propel the hotel business, too, Goldberg said, noting La Quinta just added an application to its website that allows customers to hold a room for four hours with nothing but their phone number.
For consumers who expect free Internet access and adequate bandwidth no matter the segment, bandwidth of 1.5 MB is insufficient. Bandwidth that flexes according to demand is the ticket, Goldberg said.
Parting shots
The final words from the panelists:
Kong: Think how you can differentiate your product. Make it stand out.
Bloss: Invest in management, training and technology.
Laport: Raise rates, but pay attention to operation details and be passionate about your property.
Alexander: Avoid the “commodity trap”; be different, capitalize on the opportunity a renovation affords.
Goldberg: Service, training, technology.