Market Report: Orlando

ORLANDO, Florida—For the first time in years, Orlando hoteliers don’t see an end in sight to a downward spiral of occupancy, average daily rates and revenue per available room.

Occupancy in the area has been falling since April 2008 and has experienced sharp declines in the first few months of 2009, according to Smith Travel Research data. In February, occupancy dropped 12.5 percent, and in March, occupancy plummeted 18 percent. RevPAR has followed suit, declining between 15 percent and 28 percent per month in late 2008 and the first four months of 2009.

“With occupancy down through May, RevPAR is down year to date,” said Daryl Cronk, director of research for the Orlando Convention and Visitors Bureau. “This also is affecting collections of the county’s tourist development tax, which helps fund the destination’s marketing programs.”

Harris Rosen

Because of the credit crisis, government policies and a decline of business travel, Orlando-area hoteliers aren’t sure when the industry will turn around. “I don’t see any light at the end of the tunnel,” said Harris Rosen, owner or Rosen Hotels & Resorts, a seven-unit chain with about 7,000 guestrooms in the Orlando area. “This economy has got everybody very, very concerned ... and we’re creating extraordinary deficits through government stimulus programs.”

Occupancy at Rosen Hotels’ convention properties has fallen between 10 percent and 15 percent in 2009, while leisure properties are faring somewhat better with about a 5-percent drop, Rosen said.

“Everybody is feeling the pain,” said Jeff Brinda, manager of the Sheraton Safari Hotel and Suites in Lake Buena Vista, Florida. “I don’t know of any hotel that’s doing better than last year.”

ADR at the 489-room property is off 19 percent from January through June, compared with last year, and occupancy is down 18 percent, Brinda said.

How low can rates go?

While this recession involves a longer-lasting downturn than the one following 9/11, occupancy and RevPAR in the Orlando market haven’t fallen as steeply in the first half of 2009 as they did in the months following the terrorist attacks, according to data from STR. But rates have fallen more drastically.

RevPAR plummeted between 21 percent and 35.5 percent per month from September 2001 through January 2002, and ADR dropped between 8.4 percent and 11.9 percent during those months. This year, however, ADR has declined between 8 percent and 15 percent.

“The 2001 recession was very mild and was driven largely by cutbacks in business spending; consumer spending actually held up rather well by recession standards,” Cronk said. “This recession is very different ... and consumer spending has been curtailed heavily. As a result, hotels feel the need to be much more aggressive with rates than in 2001.”

“Orlando is such a competitive market that some big players are bottoming out their rates,” said Simone Kuska-Villaneuva, director of sales and marketing for The Florida Hotel & Conference Center, which is attached to The Florida Mall in Orlando. “We’re now competing with J.W. Marriott, Rosen Shingle Creek and other five-star properties on four-star rates.”

The occupancy rates aren’t catastrophic, but the average rates are down dramatically, somewhere between 20 percent and 30 percent, Rosen said. Rosen Hotels & Resorts is able to offer deeply discounted rate promotions because the company is debt-free, he added.

Source: Smith Travel Research

Source: Smith Travel Research  Additionally, the 2001-early 2002 travel industry downturn was short-lived in the Orlando market: By February 2002, the industry was seeing single-digit declines in RevPAR, and by September 2002, RevPAR stabilized and increased 16 percent. Notably, RevPAR rose 23.4 percent in October 2002 and 22.7 percent in November 2002.

But Orlando hotels’ current RevPAR shortfalls started back in April 2008, and hoteliers don’t expect revenues to improve this year. The steepest drops in RevPAR occurred in November 2008 (-22.7 percent), February 2009 (-25.6 percent) and March 2009 (-28 percent).

Business travel woes

While the spring usually is ripe for group and leisure travel to Orlando, the spring of 2009 was marred by corporations announcing layoffs and cutbacks that include travel budgets. Orlando hoteliers are facing another group travel challenge: The flap over AIG executives taking a lavish vacation after a multimillion-dollar government bailout has led to businesses cancelling or changing their meeting plans.

Some companies and government agencies don’t want their employees to be seen having fun in places such as Orlando and Las Vegas.

As a result, properties that feature spas and a resort-like atmosphere aren’t being considered for business meetings, said Rosen and other hoteliers.

“The perception of coming to Orlando, or going to Las Vegas, for a business meeting is bad,” Brinda said.

As a result, convention hotels near the Orange County Convention Center are competing with other hotels for group business they might not have gone after in the past, Brinda said.

The business travel perceptions are impacting the bottom line. Attendance for meetings and trade shows at the Orange County Convention Center through May of this year is down 36 percent, compared with the same time period last year, according to the Orlando CVB.

“It will probably be late 2009 or 2010 before the pace of bookings picks up, and 2011 before attendance levels show signs of meaningful recovery,” Cronk said.

2009 outlook

The bright spots helping Orlando hoteliers maintain some optimism are that the recession can’t last forever and that some consumer and business attitudes are getting back to normal.

“It seems like the shock has started to wear off,” Brinda said. “It’s, ‘Let’s get through 2009 and not get back to normal in 2010,’ but people are a little more optimistic about 2010.”

“We’re a strong group hotel, so I’m hoping for a flat year in 2010,” Kuska-Villaneuva said. “I don’t see the economy picking up until 2011.”

The Orlando CVB expects hotel occupancy to stabilize and even increase slightly next year, despite an 8-percent drop in demand for hotel rooms in the area throughout 2009.

Cronk expects demand for hotel rooms to increase marginally next year—1 percent to 2 percent. Still, rates likely will be a lagging indicator as hotels hesitate to increase ADRs until they see consistent signs of increased demand.

Additionally, Orlando’s history shows the region is a growth market for leisure and business travel, and that it’s a consistent revenue-generating region for hotels. Overall, Orlando hotels have enjoyed steady increases in RevPAR and occupancy since September 2002.

One of the most notable RevPAR increases occurred in 2004 and early 2005, with double-digit increases during most months of 2004 and into the first quarter of 2005.

Source: Smith Travel Research