• During the first quarter of 2013, the hotel industry saw a 6.4%  increase in RevPAR fueled by a 4.5% uptick in ADR, said Bobby Bowers of STR.
• Occupancy is in solid territory but will soften going into 2014 and 2015 as supply begins to increase, said Adam Sacks of Tourism Economics.
• The top 25 markets are much stronger, showing RevPAR growth of 8%, which is being driven by rate.

REPORT FROM THE U.S.—The beginning of 2013 has yielded fruitful growth in the U.S. hotel industry, which will continue—albeit slowly—into the rest of the year and 2014, according to a Market Forecast & Hotel Industry Outlook Webinar hosted by STR and Tourism Economics. STR is the parent company of HotelNewsNow.com.

Even though the U.S. is in a period of austerity, gross-domestic-product growth will be just over 2% this year and accelerate to 3% during the next year, Adam Sacks, founder and managing director of Tourism Economics, said.

Sacks said additional factors have helped the U.S. economy, as well.

“The worst of the fiscal cliff has been avoided, the Main Street economy has not been dramatically affected and even though tax increases and spending cutbacks have taken hold, there is no noticeable effect on macroeconomics,” he said.

The hotel industry will take hold of this positive momentum moving into 2013.

During the first quarter of 2013, the hotel industry’s 6.4% increase in revenue per available room growth was fueled by a 4.5% uptick in average daily rate, said Bobby Bowers, senior VP of STR.

Bobby Bowers STR

“What’s driving RevPAR now is rate,” Bowers said.

Supply and demand
Although rate recovery is a positive sign, the favorable supply-demand balance that has persisted for more than a year is showing some initial signs of evening out.

“What you can see with this is the demand part is coming down to sustainable levels after a snap back from the downturn,” Bowers said. However, the “very low” room supply growth over the last two years is “beginning to creep up” around 0.6%.

With more room supply being added, it will put a drag on occupancy, he added.

Occupancy is in solid territory, according to Sacks, but it will soften going into 2014 and 2015 as supply begins to increase.

RevPAR growth is up 6.5% for first the quarter of 2013. Historical patterns show RevPAR growth extends for long periods of time followed by a downturn. “We’re in a growth phase of just under three years,” Bowers said.

“Hopefully, we’ll see more years of RevPAR growth as we move into this trend,” he added.

“The RevPAR potential for the industry is real,” Sacks said.

Click chart to enlarge.

Transient and group
The upper end of the market is seeing strong transient performance, particularly in the luxury, upper-upscale and upper-tier independent hotels, Bowers said.

“Transient performance has been strong and continues to be strong,” he said.

“On the group side, however, compared to where we are today and how we got there, there are challenges in terms of group roomnights sold,” Bowers added.

“Even though we’ve made progress, we’re still not back to where we want to be in transient and group rate,” he said.

Market performance
STR analyzes hotel performance in 163 U.S. markets, more than two-thirds of which experienced increases in occupancy and ADR during the first quarter. That’s a good sign going into 2013, Bowers said.

The top 25 markets are much stronger, showing RevPAR growth of 8%, which is being driven by rate.

The key 15 markets, which account for 25% of the industry room supply, are generating two-thirds of room revenue. Markets such as Oahu, Hawaii (+18.4%), Miami (+16.7%), New York (+12.9%) and Houston (+12.6%) are showing positive signs and increases in RevPAR moving into 2013.

When looking at the top 15 markets, the problem is two-thirds of those markets remain under prior peak ADR, Bowers said. “That’s one of the things we want to see as we move into 2013—continued growth in rate.”

Sacks said of the top 25 markets, Miami, Boston and Oahu are showing the largest increases in occupancy. “Anything where demand growth is outpacing supply growth, we’ll see occupancy rising. Anything where supply is outpacing demand, expect occupancy to decline.”

Click chart to enlarge.

Construction pipeline
Moving into the rest of 2013, room supply will grow slowly. 73,000 rooms are under construction, a 20% increase of rooms under construction in April 2013 compared to April 2012.

Approximately two-thirds of rooms under construction are classified as upscale or upper-midscale, and four out of 10 rooms are concentrated in metro areas.

New York has the largest number of rooms under construction with 10,600.

New York is second to last in expected RevPAR growth during the next two years, Sacks said. The same is true of Nashville, Tennessee, Washington, D.C., and Philadelphia. Miami and Boston will see the greatest RevPAR growth during the next two years, he added.

“Demand has been strong so supply is right behind and as a result RevPAR expectations are relatively slow,” he said.

Overall, Bowers said, “we had a really good start to 2013,” and although room supply growth is creeping higher, it’s still not a huge threat. The focus going forward will be on ADR driving RevPAR, he added.

HENDERSONVILLE, Tennessee and BOULDER, Colorado—The STR Census Database keeps track of U.S. hotels’ affiliation changes over time. Overall, there have been some 90,000 changes so far. Since we started tracking hotel data in 1987, we also have kept tabs on the name of the brand and the corresponding branding date. STR is the parent company of HotelNewsNow.com.

Brand executives and owners are keen to assure that we know which brand has access to which performance report because it is common for branded hotels to receive our weekly STAR reports, which show the property’s proprietary data. Thus the “brand affiliation” field in our database is about as real time as possible, which allows us to take a closer look at the average times a property is affiliated with a brand.

Number of affiliations by hotel
Almost 60% (28,500) of all hotels in our database never change the affiliation with which they opened.

This could either mean they remained independent for the lifetime of the hotel or remained with the same brand. Twenty percent of all hotels changed flags once (two affiliations), 12% twice (three affiliations) and the remaining 11% changed their affiliation three or more times (four or more affiliations). Despite a constant flood of press releases touting a brand conversion, the reality of the U.S. hotel industry is that most owners stay with the same affiliation, be it independent or otherwise.

The following table shows the absolute numbers of how many hotels have switched brands and how many times:

Affiliation length by chain scale
By breaking down the chain affiliation changes by scale, the following picture emerges: The average time a chain-affiliated hotel stays with a brand ranges between 10 to 15 years. Upper-upscale hotels hold a brand, on average, for just fewer than 15 years, while upscale hotels are affiliated around 10 years on average.

Our data seems to suggest that owners of independent hotels like to stay independent. The average length of an independent affiliation lasts nearly twice as long as a chain affiliation at almost 23 years.

The average number of affiliation changes by scale also shows hotels change flags less than two times in their existence. The notable outlier is the economy chain scale, where properties change more than two times.

Affiliation length by number of affiliations
Given that more than half of hotels stick with their original affiliation and given further that independent hotels are normally affiliated longer than branded hotels, it should come as no surprise that the average length of the current affiliation of properties that never switched brands is almost 25 years.

As properties switch brands, the average time associated with such a brand goes down. It is almost as if once the owner decides to switch, they become less brand loyal the more they switch.

The affiliation change also might result from an owner switching back and forth between brand and independent status. Another reason might be that the hotel brand companies decide a property no longer fits the brand standard and initiates the brand change from their end.

Click chart to enlarge.

For properties that already have switched affiliations seven times, the average length of the current affiliation is only 3.3 years. For these “heavy brand switchers,” the average length of affiliation with their last five affiliations is always less than five years. Keep in mind that only 404 hotels out of 50,000 hotels switched brands seven times.

Takeaways
Overall, hotel owners in the U.S. hotel industry are remarkably loyal to their original affiliation, be it a brand or no brand at all. Despite a steady influx of new chains and ongoing ownership changes that are heavily publicized in the media, the amount of flag changes is relatively small.

Franchise sales officers must like this idea. After all, it speaks to the power of their brands.

That said, once owners decide to make a change, they are much more susceptible to change again (and again), which is likely music to the ears of the competing franchise sales staff.

It will be interesting to note if the current upturn in the industry, with its strong financial results, makes owners more or less brand loyal as time goes by.

• The sequestration has had a muted impact on hotel performance thus far.
• LaSalle Hotel Properties reported no impact during the first quarter and minor impact thus far in the second quarter.
• Consumer confidence has held steady, although a projected cut of 750,000 full-time jobs by year-end could undermine it.

REPORT FROM THE U.S.—While the U.S. budget sequestration’s impact on hotel performance has been muted thus far, sources predict the effects will become more pronounced as the year moves on.

“I would liken it to running on a treadmill. If you set the incline up, you don’t necessarily feel it right away. It’s kind of a slow burn in terms of the impact of this being felt,” said Marlene Colucci, executive VP of public policy for the American Hotel & Lodging Association.

The sequestration was to come into force 1 January 2013 and was considered part of the so-called “fiscal cliff,” but the American Taxpayer Relief Act of 2012 delayed it until 1 March. Now the U.S. government must meet $85 billion in budget cuts by 30 September.

Marlene Colucci American Hotel & Lodging Association

That means cuts will intensify for the next few months, resulting in increased strain on the hotel industry.

Michael D. Barnello, president and CEO of LaSalle Hotel Properties, said Thursday during an earnings call with analysts the real estate investment trust did not experience any sequester-related effects during the first quarter.

“During the second quarter, we’ve seen minor impact, all of which has been outside of Washington, D.C.,” he said.

Joseph Bates, VP of research for the Global Business Travel Association, made a similar observation.

“We really haven’t seen a material impact of the sequester yet,” he said.
 
The impact was more immediate for Strand Development Company LLC, which manages more than 50 hotels, many of which are near military bases.

“What’s happened is the fiscal year for the government starts 1 October. Starting 1 October we actually started seeing some downturn in business in hotels in areas that really on military business,” said President John Pharr.

He said the cuts are only getting started. “As this huge bureaucracy starts to move, it’s like turning a big ship. It doesn’t happen very quickly. It turns slowly. But all of a sudden you’re noticing it turning.

“Before it was like anything goes, but now it’s like nothing goes.”

War of attrition
In a report issued earlier this month, Oxford Economics said the U.S. economy has been insulated somewhat from the effects of sequestration because of “remarkably strong” consumer expenditures.

That should continue to bolster leisure travel, said David Goodger, director of Europe for Tourism Economics, which is an Oxford Economics company.

“As long as unemployment doesn’t start to rise to again, consumer confidence will remain healthy and people will start to spend,” he said.

But an employment dip is expected, according to a Congressional Budget Office report cited by Colucci. The report said the sequester will result in a loss of 750,000 full-time jobs by year end. 

“Those are people who are not going to be spending that money … so certainly it will have a drag on individual spending,” she said.

The longer sequestration drags on, the greater the impact on consumer confidence. 

“It’s not exactly falling off a cliff,” Goodger said. “It’s more of a gentle slope we’re falling down.”

The Oxford Economics report points to secondary effects that “will similarly spawn slowly as orders are canceled and contracts are amended.”

Though global chains are reticent to share specific numbers, anecdotal evidence suggests such cancellations have been significant.

“For the lodging industry the government business cancellations have definitely been in the tens of millions (in revenue),” Colucci said. “In areas like D.C. in particular, they’re seeing a loss of about 7% to 8% in revenue.

“A lot of this will come to fruition later, especially as you get further down the road when you have more government contracts expiring,” she added.

Barnello pointed to such tightening on Capitol Hill during LaSalle’s earnings call.

“Within D.C. we’re being told by contacts that decision-making surrounding booking government business has gotten more stringent and as a result government leads are generally down for the remainder of the year,” he said.

However, “the impacts of government decisions are clearly nationwide and not limited to Washington, D.C.,” Barnello added, highlighting cancellations in Chicago, Indianapolis and San Diego for the latter part of 2013.

“Overall, government rooms were down slightly for the quarter from 3.6% of our rooms to 3.1%,” he said.

Effecting change
While the debate wages on in Washington, D.C., over budgets and spending, hoteliers do not have to wait it out on the sidelines, sources said.

“This is not something that is going to go away anytime soon. … If (hoteliers are) seeing impacts, they’re going to have to let their lawmakers know,” said Erik Hansen, director of domestic policy for the U.S. Travel Association.

The AH&LA’s Colucci suggested a similar route, although she emphasized the importance of relaying the economic significance of travel.

“Really making the economic case for how much of an impact travel has … is the best message that we can get across,” she said.

Photo illustration.

GLOBAL REPORT—As hoteliers increase their sales focus on direct bookings, many are relying on rank-and-file employees, such as front-desk staff and reservations agents, to accomplish that goal.

"We have always encouraged our employees, and especially front-desk people, to motivate customers to book directly with us," said Joseph Smith, executive VP of Greenbelt, Maryland-based Chesapeake Hospitality, which manages 21 U.S. properties.

One key reason: Direct bookings help build genuine customer relationships as opposed to simply logging a booking. A consequence of the Internet age, Smith said, is that traditional hospitality relationships have been reduced to mere transactions.

The simplest, most effective way to engage and educate guests who initially booked via an online-travel agency is to inform them that, contrary to a widespread myth, the lowest rate available will be offered direct. That's because typical rate-parity agreements specify that, while they can offer the same rate, no third-party seller can offer a rate lower than the supplier.

"And 99% of that kind of education happens at the front desk," Smith said. "It's a customer-by-customer process."

Chesapeake Hospitality includes such educational tactics in its basic training of front-desk employees and offers no formal rewards for future performance. "We consider it part of their normal job of servicing the best interests of the guest," Smith said." And part of that is letting them know how to best book future stays to get the best value."

Providing incentives
Wendy Norris, corporate director of revenue and ecommerce at San Antonio, Texas-based Valencia Group, which owns two independent hotels and manages three, agreed that front-desk personnel are key to success when it comes to direct bookings.

However, she said, Valencia Group offers incentives in addition to training.

"If a guest arrives from an OTA or even via our global distribution system, we incent staff to gather email addresses and talk about our repeat guest program and things like our best rate guarantee card," Norris said.

Incentives include cash rewards to front-desk employees who gather the most email addresses or enroll the most members in the company's repeat guest program.

"And we don't just do that with people on the front desk," Norris said. "We also do it with people who work on our dedicated reservations team. We also train them to gather email addresses and sign people up for the repeat guest program."

The results of the company's efforts over the last decade have been dramatic. Today, of Valencia's Web-based business, including OTAs, about 70% comes from direct bookings.

After deducting the incentive rewards paid out, Norris said, the company enjoys a significant net revenue gain based on commissions it does not have to pay.

Brand management
At the 556-room InterContinental O'Hare in Chicago, management also trains and motivates front-desk and reservations personnel to exploit every possible opportunity to convert an OTA customer to a direct booking customer for future visits, Leslie Vosburgh, business travel sales manager, said.

"We involve our front-desk employees in really getting to know guests so we know what they want the next time they come in and we can greet them by name and welcome them back," she said. "And those are levels of service that you don't necessarily get if you book through an OTA. So we train our people to make that kind of distinction in terms of customer service."

They also train staff members to promote IHG's rewards program, which Vosburgh said is one of the best in the industry. "We educate people so they understand that if they book directly with us, they get Priority Club points for every dollar they spend, whereas with a third-party OTA, they get no points," she said.

To motivate employees, the hotel offers formal recognition, such as Employee of the Month status that might include preferential parking or some other perk in return for being the most successful at generating direct bookings.

And like Valencia Group, InterContinental Chicago O'Hare has enjoyed excellent bottom-line results. Only about 10% to 15% of its business now originates with OTAs, while 70% to 75% comes from direct bookings.

Small property, big success
Another example is 23-unit Lodge at Chaa Creek in Belize, opened in 1981 as the country's first jungle resort and now recognized as an early pioneer in adventure travel.

Over the past few years, the team at the Lodge at Chaa Creek in Belize have increased direct bookings from 70% to 80% of the property's total business.

Marketing representative Larry Waight said staff dedicates a lot of time and resources to the generation of direct bookings.

"We invest a lot of time and effort to Internet marketing aimed at increasing direct bookings," he said. "For example, we use aggressive (search engine optimization) and blogging strategies to accomplish that by maximizing our rankings in search engines such as Google, Yahoo and Bing."

A team of five employees that includes Waight writes and posts compelling original content every day. "And we optimize for key search terms such as 'honeymoons in Belize' or 'adventure travel to Belize,'" he said, noting that the property often wins the No. 1 search engine spot for a given search term.

The resort also offers significant discounts for direct bookings, depending on the type of accommodation and time of year.

As a result, Lodge at Chaa Creek now has more than 10,000 subscribers to its blog. Over the past few years, Waight and his team have increased direct bookings from 70% to 80% of the property's total business.

"And that," he said, "has contributed significantly to our profitability, based on commissions not paid to OTAs, even after absorbing all of our costs, including dedicated staff."

• The NDTA suspended its annual forum in September because military travel has been curtailed.
• “Travel could become the face of sequestration,” the U.S. Travel Association’s Erik Hansen said.
• Government contractor business is also at risk for hotels.

REPORT FROM THE U.S.—Hotels are facing the loss of one of their most lucrative business segments—government travel—as sequestration gets underway.

Automatic spending cuts in effect across all government agencies have included the slashing of all non-essential travel by federal employees. The order to halt travel already has hit the hotel industry.

Last week, it was announced that the 67th annual National Defense Transportation Association Forum & Expo, which was to be held this September in San Antonio, Texas, at the San Antonio Grand Hyatt, was suspended. In a letter to members, NDTA President Kenneth R. Wykle said the lack of funds for government/military travel necessitated the suspension of the event.

“If the military is unable to participate, the Forum’s value is minimal,” he wrote. “Opportunities for training, knowledge sharing and information exchange are essential for our success. Sequestration removes these opportunities and makes it impossible for NDTA to continue our Forum.” Officials at the Grand Hyatt did not return a telephone message for comment by deadline.

It’s unclear precisely how big a slice of business the federal government is for hotels, though sources agreed it makes up a substantial piece of the pie. In 2011, the most recent data available, federal, state and local governments spent $30.3 billion on travel, said Erik Hansen, director of domestic policy with the U.S. Travel Association.

The travel sector could become one of the most impacted by sequestration because “almost every (federal) department travels,” Hansen said.

“Travel could become the face of sequestration,” he said.

Hoteliers react
B.F. Saul Company Hospitality Group counts 16 properties in its 20-hotel portfolio in the Washington, D.C./Northern Virginia market. President Mark Carrier said the government sector represents 30% to 40% of the total business at the hotels.

It’s not just the loss of rooms bought by federal employees that hurts, he said, it’s also the prospect of losing government contractors, such as Northrop Grumman Corporation.

“We do a lot of business with the federal government, and what we’re hearing and feeling is there is in most federal agencies a definite (order) to cut back on travel,” he said.

Mark Carrier B.F. Saul Company Hospitality Group

B.F. Saul has had some cancellations related to government travel, Carrier said. “You feel it through a decline in transient pick up,” he said. “It’s definitely affecting business demand. There’s no question about it.”

Michael Allen, COO of Beck Company Hotels, said the company also has noted some drop off in business. Beck Company has 10 properties in Virginia, including four in Newport News, home to the military’s Fort Eustis.

Approximately 60% to 70% of the company’s business in the region is government, much of it training related, Allen said. “It’s important to our hotels,” he said. “People are nervous in town.”

He added: “It could have a dramatic impact on top-line revenue.”

So far, Beck Company has not seen cancellations on reservations that have been booked far in advance, he said.

“People are delaying their decisions,” Allen said. “They are apprehensive about the extent of sequestration.”

Government travel outlook
Hansen doesn’t know just how much more fat the government will be able to trim from its travel budget.

“Federal conferences and travel have already been ratcheted back so far,” he said. “If they make any more cuts, they’re really cutting into the bone.”

Carrier said he is unsure how long sequestration might be a factor for hotels. “Is it long term? Let’s hope not,” he said.

Carrier likened the cutback in government travel to the decline in corporate travel that occurred between 2007 and 2009. Hansen added that hotels have shown in the past an ability to weather such storms.

“The hotel industry has always been resilient,” he said.

BOULDER, Colorado—A few years ago STR Analytics did an analysis of U.S. hotel closures and the demographics that encapsulate this group of properties. Since then, the STR census database recorded an additional 1,400 hotel closures, a significant enough number to warrant updating the analysis.

In this current analysis, we were able to compile data on more than 7,900 closed properties. The basic stats include:

• 7,919 hotels from all 50 states;
• 632,384 rooms;
• average room count: 80;
• more than 45 brands represented as of the date of closing; and
• average life span: 34 years.

It should be noted that complete census information was not available for every property, so the following charts reflect the results only from properties containing that particular data field.

Digging into the numbers reveals some interesting highlights:

(Note, the pre-2011 chain scale classifications were used, since most hotels closed prior to this point and thus were never classified under the new scale system).

As one might expect, most of the closures represented independents, with economy properties a distant second. Very few closures came at the high end of the spectrum.

This one is a bit surprising. Nearly 13% of all the closures were for properties 10 years old or younger. Clearly some properties were victims of natural disasters (Hurricane Katrina, Superstorm Sandy, etc.), but that's still a pretty big number. For the properties that closed when they were 10 years old or younger, most of the closures occurred during 2004 and 2005.

Geographically speaking, the largest amount of closures occurred in the Southeast (speaking of Katrina and hurricanes…). The often-humid climate in that area also lends itself to mold, which could be the culprit for some of the properties that closed.

Most closures happened in suburban or small metro locations. In terms of property size and price tier, most of the closures represented small (20- to-50-room) budget properties, most of which were independents (aka “mom and pop”-type establishments).

One could surmise a lot of these were single-ownership family ventures, where perhaps the owners decided to sell (or were foreclosed upon) and the property was worth more as an adaptive reuse rather than as a going concern.

Here's another surprising one:

The plurality of closed hotels only ever had one brand name (or remained independent) during their lifecycles. Several had two, but beyond that the numbers dwindle. (It would be interesting to know the stories behind the handful of hotels that went through seven names).

We would have guessed that two names would have been the majority of the cases, thinking that if one brand wasn't working, a property owner would have tried another brand or switched to independent. But that assumption is predicated on a second assumption that a closed property means it failed, which certainly doesn't have to be the case. Many properties that close still make debt services, but if the land is worth more with another use on it, market forces will push for an adaptive reuse. Ninety-four percent of the properties that had only one affiliation and then closed were independent hotels.

Finally, we looked at when these properties closed. We focused on the period from 1985 to the present, as this represents more than 90% of the closures.

Click chart to enlarge.

There was a big spike in 2005. Again, it's easy to blame Hurricane Katrina here, but only a quarter of the properties that closed that year were located in the South Atlantic region. And the number of closures had been steadily creeping up before that point, anyway. If you take a look at (seasonally-adjusted) revenue per available room from 2000 to 2005, it was almost unchanged. Yet owners who financed their properties in 2000 were paying a relatively steep interest rate. With cheaper money available in 2005, a mom-and-pop hotel owner was just as likely to sell a struggling property to a speculator rather than refinance and pray for the best.

The trend of closures here follows roughly the same pattern of hotel sales in general, with the peak also occurring in 2005 and then declining sharply after 2007. So, assuming that a portion of all hotel sales end up as adaptive reuse projects, the trend line above can be explained as a simple correlation.

Revenue managers often feel like pioneers in the Wild West when attempting to tame and optimize mobile. How do you sell and manage revenue via this medium? What should you be thinking about as you create your own mobile strategy? Don’t go wild yourself, and don’t overthink it, but do have a strategy.

Susan Spencer

Remember the standard consumer buying behavior pattern:

1. Consumer identifies the need to look for a product, such as a hotel stay.
2. Consumer identifies the range of suppliers (hotels) through research and comparison.
3. Consumer selects a supplier (hotel).
4. Consumer attempts to purchase (book) the product (hotel).

If the consumer selects your product and it is difficult to purchase (because of poor visibility, too many steps to final purchase, poor photos, slow booking engine, etc.), then guess what? Back to Step 1 they go. And the selection process begins all over again with your hotel losing the booking to a competitor.

Whether for desktop, tablet or mobile devices, your presence must be sharp, clear and easy to navigate with a fast booking engine requiring as few clicks as possible.

According to HSMAI’s Digital Marketing Council, “With the increase of tablet ownership and usage, mobile is moving beyond the original scope of mobile phones into broader territory. For hoteliers, mobile for tablets presents a different opportunity than mobile for smartphones.”

The council recommends that “while mobile phones are particularly relevant in the shop, book and experience phases, tablets are uniquely positioned to aid in the dreaming or desire to be inspired phase, as well as the learning phase. What this means is that a tablet-specific website should be considered because the consumer behavior varies so dramatically between the two mobile devices. Speed and ease of use are critical for the smartphone, but vivid photos are more essential for the mobile tablet.”

Does this mean that you have to go out and spend often scarce marketing dollars to develop an expensive mobile app? Not initially for sure, and possibly not at all. From the technology side, all you have to do is optimize your existing website so that your mobile and tablet customers will see your hotel in the best light. That’s it.

I recently spoke with a software developer who gave the following tips to do just that:

1. Make sure your website loads efficiently (fast, responsive, correctly in multiple browsers).
2. Modify your existing website for mobile so it will readjust to the size of mobile and tablet automatically.
3. Make sure your “call to action” buttons (location, search availability, book now) are large enough so that they can be utilized via touch screen as opposed to relying on mouse functionality.
4. Make sure the booking engine works well on mobile devices.
5. Compare and contrast your website on a desktop to your site on a mobile device.

From the hotelier perspective, I turned to Calvin Anderson, corporate director of revenue strategy for Alliance Hospitality Management, and a fellow HSMAI Revenue Management Advisory Board member. When asked if mobile is really a distribution channel or just a mode of technology that the consumer chooses to shop and book travel on, Calvin’s experience is in alignment with the earlier suggestion to optimize your own site without giving in to the “app bubble.”

He explained: “Mobile has been mis-coined in the hotel industry, and our use of the term has led many to believe that anything booked from a cellular device is exclusive. Apps are actually the only thing that cannot be gotten on a desktop, and even many of those are just a reformatted version of the original website.”

The trend to discount mobile to third-party mobile platforms just because they have been labeled “last minute” might not always be the right strategy. This risks the hotel’s price integrity as well as that of other distribution channels. If the booking window is day of arrival, heavy discounting on mobile is the same thing as offering a walk-in guest the same discount (I’ve seen 30% off or more).

Price rooms strategically to encourage advance bookings. Offer incentives or a competitive rate for a seven- to 14-day advance booking that is non-refundable to the guest. Try to track and learn about your mobile customers. What is their booking lead time, length of stay, average spend on property, cancellation and no show history? Tracking this type of information will assist you in forecasting and marketing to that mobile consumer.

Mobile booking patterns
At HSMAI’s recent Digital Marketing Strategy Conference, Mike Corak, executive VP of strategy for Ethology, shared information on mobile travel bookers and strategies to attract them. In a nutshell, smartphone travel booking is expected to grow significantly; nearly twice as many consumers will use smartphones to research versus book.

According to eMarketer’s study of those who have booked travel via mobile Internet or app services at least once in the past 12 months, the number of mobile travel bookers in the U.S. will grow to 20.2 million by the end of 2013. That number is projected to almost double by 2016.

Mobile researchers who “researched travel information prior to a trip via mobile Internet or app services at least once in the past year but did not necessarily book” amounted to 29.7 million in the U.S. in 2012. Mobile bookers “who booked travel via mobile internet or app service at least once in the past year” stood at 15.1 million.

Both Mike and Calvin will join me for an HSMAI webinar on 26 March to delve deeper and highlight additional strategies for taming this new frontier of mobile for hotels.

According to Bookassist CEO Des O'Mahony, “Mobile is a very real opportunity. Volume is growing; conversion can often be higher than regular web access and is definitely higher when optimized mobile solutions are deployed. IPad stands out as a clear opportunity and, with the rate of sales of iPads and their dominance among travelers, it is clearly a target platform above all others. Short term booking is dominating and last minute availability on mobile is critical for successful conversion.”

How is your hotel taking advantage of this opportunity?

About the author
As Market Director – North America for ChannelRUSH, Susan is responsible for spearheading growth and brand awareness for the technology distribution software company. She has over 20 years of hospitality industry sales and marketing experience in hotels, OTAs, car rental, and CVB’s. Prior to ChannelRUSH, Susan was Director of Product Development for OneTravel.com and was responsible for increasing hotel net rate agreements in key markets for the company. She also worked for the Orlando Convention and Visitor’s Bureau as Sales Development Manager, uncovering new convention business for Orlando. During her tenure with the Hertz Corporation she introduced and implemented the convention meetings and contracting for Hertz’ meetings program nationwide. She also spent time in group sales for Marriott, Hilton, Sheraton, and Intercontinental in Florida, Michigan, and Virginia. Susan is a graduate of Radford University where she earned a B.S. in Marketing. She is a member of HSMAI’s Revenue Management Advisory Board.

REPORT FROM THE U.S.—With the 1 January 2014 implementation deadline for the Patient Protection and Affordable Care Act—better known as Obamacare—looming ever closer, the overarching issues continue to be ongoing confusion and uncertainty.

"No business owner likes uncertainty," said Kevin Maher, senior VP for governmental affairs at the American Hotel & Lodging Association. "They want to know what the law requires and what they need to do. And with this law, you can't really tell them that at this point."

The law requires companies with 50 or more full-time employees to pay at least 60% of the cost of a health insurance plan that is both "adequate" and "affordable," or pay penalties of up to $2,000 per worker. The employee's cost cannot exceed 9.5% of household income.

In January, the IRS released proposed regulations known as "pay or play" guidelines intended to clarify requirements and penalties. "That was the information everyone was waiting on," said Sheldon Blumling, a veteran labor law attorney at the national firm Fisher & Phillips.

However, the guidelines, scheduled to be formally adopted after public hearings in April, are 180 pages long and enormously complex, sources said.

Meanwhile, Blumling said, "I'm sick and tired of standing in a room full of people and telling them, 'We still don't know this and we still don't know that.'"

Weighing complicated options
Robert Habeeb, president and COO of Chicago-based First Hospitality Group, which operates 52 U.S. hotels and has a total of about 3,900 employees, agreed that uncertainty is the enduring issue of the moment.

Robert Habeeb First Hospitality Group

"And a big part of the uncertainty is the requirement for state-by-state exchanges, which might turn out to be the best option for hoteliers," he said. "Many states have done a really poor job of dealing with that issue. So no one really knows yet what the cost model is going to look like or how widespread participation in these exchanges is going to be. We are 10 months from full implementation of the law, but one of the most basic plan components has not yet been fully identified."

Last summer, an Obamacare consultant advised First Hospitality Group to cut its full-time work force in half, double its number of part-time employees, abolish its current health insurance plan and absorb up to $6 million in penalties.

"I got a lot of criticism for speaking publicly about that, because many people felt those numbers were pessimistic and premature," Habeeb said. "But they have held up."

In fact, Blumling said, what was once considered a drastic choice is now being widely considered. "I think every employer in the hotel industry and any other industry with a low-wage work force that has historically not been provided employer-paid insurance is looking at that as a strategy," he said. "It's just a matter of the relative costs of the different options."

However, Maher said, "The appearance of doing that as a way of getting around the (impact of) the law can be a bit of a public relations issue, so many hoteliers are cautious. There are also some protections for employees under the Employee Retirement Income Security Act. You can't necessarily just cut their hours."

Workforce management
Even if legal pitfalls can be avoided, widely reducing hours likely would have a negative impact on workforce morale and cause increased turnover, Habeeb said. "And it would also increase administrative costs because of increased time for hiring and training, scheduling and record-keeping. You will have to constantly monitor people's hours, because once they hit 30 hours a week regularly, they become qualified for insurance. So there is going to be a ton of reporting required. And that is expensive."

Habeeb and his management team have not made a final decision yet. But at the moment, he said, they are leaning toward leaving their current insurance plan in effect and significantly reducing the number of full-time employees.

Robert A. Rauch, president of San Diego-based R.A. Rauch & Associates, which owns three hotels, manages four and provides consulting services to another 12, estimates that by canceling his company's insurance plan and absorbing the penalties, he can reduce costs from $250,000 a year to about $100,000. The company pays 75% of the monthly premiums for about 57% of the 100 people it employs full-time at the three hotels it owns.

Robert A. Rauch R.A. Rauch & Associates

Despite the fact it averages only about 33 workers per property—short of the minimum of 50-per-enterprise that typically requires insurance coverage—the company is liable because its entire payroll functions on a single federal employer identification number. That means that
under the law, it is a single work force and not three.

The irony, under the law of unintended consequences, Rauch said, is that Obamacare could have the opposite of its intended effect at his hotels by causing some employees to lose their current coverage and see their hours reduced.

Like First Hospitality Group, Rauch is now looking at steering employees into an insurance exchange, which could help to reduce his costs while still offering insurance to all full-time employees. "And our thinking right now is that if we can put our employees into the exchanges," he said, "we will also raise their salaries to help them pay their premiums."

He agreed with Habeeb that ideally, he will be able to make a decision that is in the best interests of his employees, while honoring his fiduciary responsibilities to his partners.
That is a delicate balance that many hoteliers are struggling with.

But another, Maher said, is just as daunting.

“Nobody wants to be the first to drop insurance coverage for their employees,” he said. “But nobody wants to be the last one still paying for it either."

REPORT FROM THE U.S.—The general sentiment around the convention and meetings industry lately has been one of contraction from lackluster bookings and shortened duration. But because the convention and meetings industry lacks a standardized method of benchmarking, it is difficult to draw conclusions about this space from data. However, one type of data collected by STR, parent company of HotelNewsNow.com, has a direct relationship with meetings booked: group segmentation data.

This analysis will merely look to see if the data supports the notion of meetings business being weak during the current economic recovery cycle. It is important to note that group segmentation analysis is not intended to make inferences about the meetings business.

Chart 1 illustrates seasonally adjusted levels of transient and group demand for United States upper-tier hotels over the past several years. From the growth rates given on the slides, it is easy to see that group demand has not recovered nearly at the pace of transient demand.

Looking a little closer, group and transient demand were on similar trajectories immediately after the total U.S. low point in March 2009. Then, in the last half of 2010, group demand hit a level that it has yet to surpass as it bounces around 8.5 million to 9 million roomnights sold per month on a seasonally adjusted basis. In fact, with the dip the numbers took in the last two months, group demand decreased 3.6% from January 2012 to the year’s end.

The degree to which the group numbers have been stagnant certainly suggests some weakness in the meetings and convention pace. The fairly significant recovery the overall hospitality industry has experienced cannot be seen in the group numbers. For upper-end properties, the strong data over the last two years has been almost completely the result of transient growth.

To take a slightly different approach to this issue, let’s examine how the top 25 U.S. markets have fared with respect to their group business against all other markets. Given how the top 25 markets have dominated the meetings space traditionally, the group performance in these markets could indicate a structural change in meetings if group business has become more or less concentrated in these top markets.

Chart 2 shows a 12-month rolling total of group demand for the top 25 markets grouped together and all other markets aggregated. It becomes immediately apparent that group business has become less concentrated in the top 25 markets. In October 2007, the top 25 markets exceeded all other markets combined by 6.7 million roomnights sold over the previous 12 months. Today, this gap has completely disappeared. Granted, there are many large-sized markets with convention centers not listed in STR’s top 25 markets, but this data could be interpreted as an indicator that coming out of the most recent downward cycle, meeting planners are shifting toward smaller size meetings if they are shifting toward smaller markets. This trend would make sense given the proliferation of efforts to reduce travel expenses today.

Again, none of this data can be used to conclusively infer weak or declining performance in the meetings sector, but given the direct correlation between this sector and group hotel business, this data suggests that the pace of meetings has been stagnant and that meeting planners are taking different approaches, such as smaller sizes and shorter duration.

Kimpton’s Mike Depatie (right) said the boutique segment is still in the early stages of recovery while Interstate’s Jim Abrahamson looks on.

LOS ANGELES—Good, but not great.

That’s how executives from some of the world’s leading management companies discussed the future outlook for the hotel industry during a breakout session Wednesday afternoon at the Americas Lodging Investment Summit.

“The situation is improving. Does it improve as rapidly as we would like it to? No,” said Michael George, president and CEO of Crescent Hotels & Resorts, which operates 69 properties in the United States and Canada.

Rate remains the biggest area for improvement, the panelists agreed during a session titled “The view from the boardroom—a focus on management companies.”

“We’re hitting occupancy levels, and we have quite a ways to go in our belief on rate,” George said.

Interstate Hotels & Resorts, which saw a 7% increase in revenue per available room across its portfolio of nearly 70,000 rooms, will see that growth slowed but is still driven primarily by rate, CEO Jim Abrahamson said.

“The better year in 2013 should come not with this stout RevPAR growth but it will be largely (rate-driven),” he said.

“I think it’s going to be a good year but not a great year,” Abrahamson said, while pointing to the lingering threats from what he dubbed “known unknowns,” such as the impact of health-care reform implementation.

While the robust transient segment largely has shielded the U.S. hotel industry from several of those macro factors, the group segment has left something to be desired, said Steve Rudnitsky, president and CEO of Dolce Hotels and Resorts.

“Group has not come back to the level in North America that transient has either by occupancy or by rate. There’s still kind of a halo effect of bookings that occurred during the downturn that we’re still sort of cycling through that is depressing rate to some extent,” he said, adding that booking pace has been up double digits in the first quarter and approximately 5% for full-year 2013.

Dolce, which has more than 25 properties worldwide, is a business-oriented brand that specializes in training and corporate events, Rudnitsky explained.

The boutique segment is in the early stages of recovery, according to Mike Depatie, CEO of Kimpton Hotels & Restaurants, a boutique brand with more than 50 properties in the U.S.

While demand has returned to most markets, he pointed to an uptick in supply—fueled by the availability of more financing—which will make the competitive landscape that much more volatile and challenging.

Opportunistic expansion
But with challenges come opportunities, as each executive pointed to a more active transaction market as a key driver to their own portfolio expansions.

Dolce’s Steve Rudnitsky said the group segment still has a lot of room for growth.

“Our signings are in direct proportion to changes in ownership,” Abrahamson said.

Interstate plans to sign approximately 50 new management contracts each year, with additional expansion coming in the form of acquisition and consolidation, he added.

While growth opportunities exist in the states, Abrahamson said Europe will prove a “sizeable play” in 2013, 2014 and 2015.

The sessions’ other panelists were a bit more reserved in their growth projections. George, for example, stressed that Crescent’s growth is tied to the aspirations of their client base.

“Our growth is targeted solely to certain clients that you want to do business with,” he said. “ … We’ll add appropriately, but most important, we want to keep happy the clients that we have.”

Because Dolce is a brand unto itself, Rudnitsky said the company is restrained to only add assets that fit within those parameters.

“If you are truly your strategic platform of building a branded management company … then you stay true to it just that way and you don’t waver on the assets that you bring into the portfolio,” he said, adding Dolce is pursuing at least some growth through ground-up development.

Kimpton is taking a similar approach, Depatie said. The brand provides much more value to developers of new projects as opposed to taking over existing boutique assets where there is little value to be added, he said.

Sophistication and savvy
Management companies have done a much better job of driving flow through to the bottom line, the panelists said.

And at the same time, owners have displayed that savvy outlook when managing their managers.

“We are seeing much more active, very astute ownership today,” Abrahamson said.

The caliber of private equity and real estate investment trusts buying their way into the hotel sector are much more demanding when management companies exert a “laser focus” on the pro forma, he added.

“There’s just a lot more drilling into the substance of the operating company. If you’re good, you can answer it and you can give comfort,” George said.

REITs, for example, don’t just ask about how a management company will operate their asset. They now ask about their other investments, leverage, turnover ratio and more, he said.

That level of scrutiny is weeding out a lot of the less experienced operators, George said.

It’s also demonstrating the level of customization that is required to satisfy the needs of owners, Abrahamson added.

“The big thing they want today is flexibility because most of the owners are transactional,” he said.

REPORT FOR THE U.S.—As the realms of sales, marketing and revenue management collide, revenue managers must begin to account for online reviews and ratings in their pricing and yield strategies.

Failure to do so means a failure to leverage all attributes of pricing power, according to panelists Tuesday during a webinar titled “Reputation drives revenue: How traveler reviews affect hotel pricing power.”

“Reviews and ratings place such a key role in traveler decisions, that they should therefore play a key role in revenue-management decisions,” said Daniel Edward Craig, founder of Reknown, an online-marketing, social-media and reputation-management firm.

To help understand the extent to which reviews should play in those decisions, Chris Anderson, associate professor in Cornell University’s School of Hotel Administration, shared new information from two key studies.

(Editor's note: "The Impact of Social Media on Lodging Performance" is now available for download at Cornell's website.)

Chris Anderson Cornell University's School of Hotel Administration

The first analyzed booking data from nine U.S. cities, specifically looking at the last 25 hotels a consumer looked at before purchasing one of those properties. He identified attributes from each of those properties, such as price, star ranking, position on the screen, location and user reviews.

Anderson then used the data to model a consumer’s likelihood to purchase or not purchase as a function of those attributes. User reviews yielded a coefficient of 1.135, meaning a one point gain in user review ratings would make someone 13.5% more likely to book that hotel.

Knowing this, a revenue manager could increase the rate, which negatively impacts a user’s likelihood to book, without seeing an overall net decrease in bookings.

For example, if a property was able to increase its average user rating from 3.8 to 4.8 on a 5-point scale, its revenue manager could increase rate by 8% without seeing a negative impact on overall net bookings.

“You get a sense of the pricing power of user reviews,” Anderson said.

Rate and reviews
The second study examined two-and-a-half years worth of hotel performance data from STR and compared it to online reputations ratings, as measured by ReviewPro’s Global Review Index. ReviewPro sponsored the webinar. STR is the parent company of HotelNewsNow.com.

Anderson used the two data sets to measure user-generated elasticity, or the percent change in pricing power, demand and performance as a function of a percent change in online reputation.

The results, shown in the chart below, highlight the increase in the various metrics given a 1% gain in online reputation.

For example, if a luxury hotel was to increase its online reputation by 1%, then its average daily rate would increase by 0.44%, its occupancy would increase by 0.09% and its revenue per available room would increase by 0.49%.

Because luxury assets are typically more established with predictable levels of strong service, user-generated reviews have less of an impact on performance. But as one moves further down the chain scales, uncertainty increases and reviews have a much stronger impact, Anderson said.

In the midscale segment, for example, a 1% increase in online reputation yields a 1.42% gain in RevPAR, compared to only 0.49% for luxury hotels.

“We see a dramatic impact upon performance of that property as a function of improvements in their online reputations,” he said.

That means online reviews and ratings are more important now than ever before.

“Users are communicating with lots of social content, whether that’s TripAdvisor or reviews for Travelocity or Expedia, and that’s part of this research process. At the time of purchase … that’s sort of swaying the consumer from one hotel to another potential,” Anderson said.

“The net of this as we look at aggregate performance, there truly is some correlation between a firm’s online reputation and the pricing power that comes with that and the ability to drive demand or drive rate and ultimately increase performance.”

REPORT FROM THE U.S.—Hotel transactions have been slow to move through the pipeline during 2012. But some hotel investors are finding that paying all cash first and layering in debt later helps move these deals along more quickly.

A hotel buyer purchasing a hotel all cash and paying off existing mortgages, and then replacing the debt with lower-cost financing is not a new idea. However, talk of the practice has increased around the industry as the hotel transactions environment has slogged to a crawl.

Steve Hennis STR Analytics

“A big hiccup in the transactions process … is the amount of time it takes to work out a deal with special servicers (or) do the credit of the buyer” for example, said Enrique Torres, an analyst with Green Street Advisors.

Mit Shah Noble Investment Group

Shah said buying existing yields and then attaching floating- or fixed-rate debt at 5% or 6% can be a big plus.

From left to right: Sam Shank of HotelTonight; Chris Loughlin of Travelzoo; Gareth Gaston of Wyndham Hotel Group; and Geraldine Calpin of Hilton Worldwide.

PHOENIX—Iterate. Measure. Tweak. Monitor. Iterate again.

The hotel ecommerce space is so fluid—is evolving so rapidly—that hoteliers and online travel agencies are constantly shifting their priorities. Each day, new advancements bring new channels and new challenges. As consumers change the way they research and book trips, hoteliers and OTAs find themselves constantly trying to keep up.

A panel of hotel ecommerce experts at the 2012 PhoCusWright Conference looked back over the past five years to illustrate just how far hotel ecommerce has come in such a short time.

“Five years ago, we were saying online was the future. At that time, it was 8% to 10% of our business,” said Geraldine Calpin, VP of global ecommerce services for Hilton Worldwide. “At that time, it was about having a great website and keeping content—words and pictures—up to date. It was pretty simple.”

“Today, the average millennial will switch between 27 different media in an hour,” she continued. “To be successful in promoting hotels today, you have to be successful everywhere. That’s really complicated when you have 3,500 hotels around the world.”

Today’s online space is more complex and more fragmented, panelists agreed. Even the customers’ attention has splintered.

“Everywhere they go, in order to make up their decisions, it’s no longer words and pictures, it’s entertainment,” Calpin said.

Gareth H. Gaston, senior VP of global ecommerce for Wyndham Hotel Group, outlined three main priorities for hoteliers to focus on in today’s ecommerce landscape:

• Ratings and reviews. How a hotel is positioned is no longer driven by the hotel or the brand but rather by the consumer.
• Mobile. There is a tremendous amount of growth in the mobile research and booking space, which in turn is leading to shortening booking windows. Hoteliers have to take this new channel into account as pricing models evolve.
• Media and distribution. There is a “mass hysteria” right now over “shiny, new things” promising to deliver demand to hotels, Gaston said. New opportunities are popping up left, right and center, he said. “There are dozens of things you can spend your money on,” Gaston said.

The rise in importance of the mobile channel garnered much attention at PhoCusWright.

“We’ve been talking for years about ‘this is the year of mobile,’” Gaston said. “Desktop searches have declined year over year. We’re trying to understand how to take a fantastic, fabulous product like hotels and transition them onto mobile.”

If anyone knows first-hand the importance of the mobile channel to the hotel industry, it’s Sam Shank, CEO and founder of HotelTonight, a company that received much praise over the three-day conference for its innovation in a new space that was previously underserved.

“Three, five years ago we couldn’t have existed,” Shank said of the fully-mobile product.

Shank added that search-engine marketing, particularly with new parameters introduced by Google, is making it harder to promote and sell hotel rooms.

“Previously you could write a check to get traffic to your hotels,” Shank said, describing keyword and SEM practices. “Now it’s no longer about having the biggest bank account.”

In terms of the dissention between hotels and OTAs, Gaston said there are OTAs that are helping solve a problem hoteliers could not do on their own and there are OTAs that are maliciously attacking hotel revenue with large margins.

Jeff Boyd, president and CEO of Priceline.com, said brands have “done a great job” improving their user interfaces.

“They are selling many, many more rooms on supplier.com, and I don’t expect that dynamic to change,” he said.

Where to invest
Given the rapidly evolving space, hotel ecommerce experts shed light on how they evaluate what channels and what processes to invest in.

“We have a test and learn philosophy,” Hilton’s Calpin said. “We ask, ‘Where did we (invest) yesterday? Is that the right place?’ Then we turn it off and see what happens.”

“Let the data tell you what works,” she suggested. “Take a little bit of money, run at it, give it a go and run tests. Have the right analytics, the right data and test.”

Calpin addressed efforts Hilton is making to centralize online disciplines, comparing digital distribution today to revenue-management practices 20 years ago. It was Hilton’s former President of Global Brands Paul Brown who announced at the 2011 PhoCusWright Conference that the supplier would embark on a new initiative to remove revenue-management responsibilities from the individual hotelier.

“This time last year we said this digital thing is here to stay,” Calpin said. “We said we can play at this and give (hotel partners) best practices or we can take the bold step and say we’ll do it for them in a clustered environment. We’re adding that capability and ensuring every one of our hotels has the resources to do it for them. It helps them make the right decisions.”

However, Wyndham’s Gaston countered, saying “you can’t outsource customer service.”

Calpin said if property-level hoteliers were left to their own devices, they’d invest in “what the owner likes instead of what we’ve demonstrated generates returns.”

Shank, of HotelTonight, said return on investment can’t be the only measuring stick when deciding where to invest. If HotelTonight would’ve looked strictly at ROI in its early days, the company would’ve shut down.

“We were only doing a booking every two days,” he said. “But we had faith that mobile was growing at a rate of 300% a year. … the most successful things for us have been completely un-measurable.”

Gaston evaluates investment in new distribution partners by asking whether the tool will help drive incremental demand and whether it will solve a problem. Then he looks at the expense to gain that incremental demand. He said there has been little innovation that actually helps hoteliers solve specific problems. For example, he said a technology startup that helps hoteliers boost Sunday night business would be a boon.

“The reason a lot of these startups work is because a shiny new thing shows up and we give them a good deal,” Gaston said.

Shank defended HotelTonight, saying 91% of users reported they had not stayed at the hotel they booked on HotelTonight previously, attempting to prove the tool is driving incremental demand. He also said Hotel Tonight does not bid against hotels on keywords.

“We built this to be very supplier friendly,” he said.

Calpin said Hilton understands that consumers aren’t always going to want to go to Hilton.com to research and book. So, provided OTA partners don’t “bid on our keywords or break any of the rules,” she said she considers OTAs a friend to hotels.

A bevy of third-party distributors sell rooms specifically through mobile apps.

REPORT FROM THE U.S.—With the growing number of hotel bookings coming via the mobile device, hoteliers are evolving their strategy to distribute and price inventory on mobile channels correctly.

Until recently, mobile channels had been pinned as last-minute discount channels where travelers could find deals on hotel rooms. Hoteliers bought into that notion and were giving inventory to distributors at deep discounts.

“The temptation to (discount the mobile channel) is clearly there,” said John Hach, senior VP of global product management at TravelClick. “At a high level, people are looking at mobile as an emerging channel and determining best practices. There’s a temptation to look at emerging channels and use them as a way to sell distressed inventory.

“However, I would caution against that practice.”

A poster child for the last-minute strategy is HotelTonight, which markets “last-minute hotel deals” throughout its app. “Hotels give us last-minute deals on their unsold rooms, with discounts up to 70%,” the company boasts on its website.

And there are many others; Travelocity most recently introduced Lastminute.com, a booking app that promises “instant access to 3-5 star hotels with discounts up to 55%.”

But hoteliers are figuring out that, as more people spend time surfing on tablets and smartphones, they’ll pay the same rate for a hotel room through those devices as they will through a desktop site or over the phone. Therefore, revenue managers more often are being advised to keep the mobile channel in parity with other distribution channels.

HotelTonight executives said the app’s association with discounting is a misnomer, promising the company “is truly on the hoteliers’ side.”

“Nothing frustrates me more than this notion that, because this is a mobile device, hotels should discount on it,” HotelTonight's COO and Co-founder Jared Simon said. “We’ve never believed that. This is sort of a bastardization of our model by big (online travel agencies) who have forced hotels to discount through their mobile app.

“I would love to shout from the rooftop that it would be a silly strategy (to discount the mobile channel),” Simon continued. “We would never endorse that.”

HotelTonight strategy
Simon said HotelTonight is designed to reach many audiences, including those looking for a last-minute deal and those looking for a last-minute room and are indifferent to the specific brand of hotel for which they are looking.

“We believe you should discount or not … depending on the customer’s position,” he said.

For the hoteliers, Simon said HotelTonight can be a channel to fill last-minute cancellations at a discounted rate or a channel to fill the last few rooms in the hotel at parity.

“Potentially discounting is a great option, but that has nothing to do with whether it’s a mobile channel or not,” he said. “Our view is that you can use mobile to capture this guest if you can induce them to book and you’re not cannibalizing your other channels. Otherwise, it doesn’t make sense to discount.”

He said even at the last second there are reasons a hotel might put out a full-fare rate.

Robert McDowell, senior VP of global distribution and loyalty at Choice Hotels International, remains a bit skeptical. He said HotelTonight is claiming to franchisees that the app can drive last-minute incremental demand, which franchisees have gravitated toward. However, a lot of the business is not incremental demand—it is just demand that has shifted from another platform, McDowell said.

“Business shifting from the desktop area to the tablet or mobile device is not incremental demand,” he said. “If you just discount it, you’re training consumers to wait until the last minute to book, which flies in the face of any revenue management strategy.”

Evolution of mobile pricing
Stephen Field, president of Synergy Hospitality, a Philadelphia-based management company, said he has never thought of having a mobile strategy as a last-minute discounting opportunity.

“We don’t really have a discount mentality,” he said. “We’re sort of waiting to see where things go with this.”

Choice’s McDowell likens the emergence of the mobile channel to the emergence of OTAs in the early 2000s. Early on, he said, hotels were giving inventory to OTAs at deep discounts as a way to increase demand. Over time, he said, hoteliers became smarter with their pricing strategies.

“Hoteliers need to recognize and have a better understanding of their guests,” he said. “The folks who are setting the pricing and setting the channel mix need to understand that mobile is no different than the desktop and they might not have to discount the channel.”

TravelClick’s Hach pointed to delayed flights as an example of same-day booking opportunity. If a traveler is stuck in a layover city and searches for a hotel room on his or her mobile device, he or she won’t necessarily be looking for a discount, Hach said.

He pointed to LaQuinta’s launch of “Instant Hold” as an example of a hotel brand looking to capitalize on same-day bookings without undercutting rate.

While Choice has earmarked a significant amount of capital to capture demand through its own mobile channels, McDowell said he continues to try to educate franchisees that it’s just a shift in demand, not “something they have to chase down by discounting.”

“Understand the mix and manage that appropriately,” he said. “It’s ultimately the revenue manager who has to have a real good understanding of where the demand is coming from and price appropriately by channel and device.”

On HotelTonight, users will see three hotel options in the market for which they are searching. The hotels are rotated every day to ensure users can’t predict which hotels will be offered. Simon said this is done intentionally “to protect hotels from people just waiting until the same day and hope your hotel is going to appear.”

“That’s very different than how other OTAs do it,” he said.

Simon said the “impulse rates” those last-minute bookers see are special promotional prices that should be used “only when you absolutely need to move rooms at the last second.”

REPORT FROM THE U.S.—The average price per key during a hotel transaction for the U.S. hotel industry continues its slow and steady climb, although the pace of growth varies considerably by market and asset.

The average price per key across all segments was $192,000 September year to date—a 1.6% increase from the same period last year, according to STR Analytics, sister company of the Hotel Investment Barometer.

Another analysis from Jones Lang LaSalle Hotels pinned the metric at $170,000 through the first nine months of the year.

Source: Jones Lang LaSalle Hotels

A further study from HVS indicates that in hotel sales valued at $10 million or more, the average price per key increased by approximately 15% from $185,000 during 2010 to $214,000 during 2011.

“Price per key is trending up since the downturn in late 2008. However, this is asset- and market-specific,” said Tony Muscio, senior VP at JLLH. “If cash flow is at or near peak levels, this helps in a higher price per key. Other factors to consider are if the hotel is in a major market and would be accretive for a REIT purchase.”

“The composition of the transacted assets is extremely important: key markets versus secondary markets; who has been acquiring these deals,” said Gilda Perez-Alvarado, also senior VP at JLLH. “Private equity drove pricing over the last peak due to highly leveraged acquisitions. Also the type of asset that is being traded—is the asset stable or is it a repositioning opportunity.”

Major urban markets, such as New York, San Francisco, Los Angeles and Washington, D.C., typically hold a premium in price per key, Muscio said.

Of the six most active U.S. states in terms of the number of hotel acquisitions, New York posted the highest average price per key during the first half of 2012, according to the “2012 United States Hotel Valuation Index” conducted by HVS.

The state’s average of $268,831 outpaced California’s $239,165.

“Major markets normally have a bigger investor pool—more competition drives price,” Perez-Alvarado said. “Also, it is important to consider supply trends. Those markets with constrained supply growth or high barriers to entry are pricing at a premium. This is going to become even more important once construction financing becomes more readily available and development activity picks up.”

Discerning trends by chain scale is more difficult, Muscio said.

“There is not (significant increases or decreases) in any particular segment, as it would depend on how the property is performing, where it is located and availability of putting debt on the asset,” he said.

JLLH, however, does compile data for select-service and full-service hotels.

Source: Jones Lang LaSalle Hotels

Future outlook
The next few years will see continued increases in average price per key, according to the HVS study.

“Based on the HVI, U.S. hotel values peaked in 2006 at $100,000 per room. The low point during the recent downturn occurred in 2009, with values dropping to $56,000 per room. We project that U.S. hotel value growth will persist through 2016, surpassing 2006 values by 2013,” according to the report, which was co-authored by Stephen Rushmore, Jr., and Katharina Kuehnle of HVS.

Having peaked in 2011, the pace of growth, however, will continue to slow, the report found.

Looking ahead, secondary markets—led by Tucson, Arizona; Tallahassee, Florida; and Sacramento, California—have the largest upside, as most primary markets have already recovered in value.

Price per key for the U.S. hotel industry on average is expected to increase 38% through 2016.

San Francisco is the only market of the 66 tracked by HVS that is projected to see a decrease in value (-1%) through 2016.

Peter Yesawich of MMGY Global shared key insights about the American traveler during the ISHC's 2012 Annual Conference.

ATLANTA—The American traveling public is a fickle bunch, prone to shifts in sentiment and selling habits. But in those adjustments and adaptations comes opportunities for the savvy hotel marketer.

The key, said Peter Yesawich, vice chairman of MMGY Global, is keeping one’s finger on the pulse of those changes to best take advantage.

Doing so is no easy feat, he admitted. Fortunately, MMGY Global has a team specifically dedicated to the task. And during a panel titled “Spectator trends: Challenges and opportunities” during the International Society of Hospitality Consultants’ 2012 Annual Conference, he shared 16 of their most compelling findings.

(Note: MMGY’s findings are limited to the approximately 50% of American households that travel. Of those 50%, the group only examines households with an annual income of more than $50,000, which Yesawich said drive the majority of shifts in travel.)

1. Incidence of travel largely unchanged
The rate at which Americans took an overnight trip during the past 12 months held largely consistent with the previous two years, Yesawich said. During 2010 and 2011, 91% of Americans said they went on a trip; this year that number was 90%.

2. Leisure demand is dominating
Approximately four out of 10 Americans took at least one business trip during the past year. Roughly eight of 10, however, took at least one leisure trip during the year.

“The locus of demand in the travel business began to shift to leisure four years ago, and that spread has widened,” Yesawich said.

The average American took 3.8 leisure trips during the past 12 months, he added.

3. Affluent driving demand
“The affluent traveler is driving much of the demand,” Yesawich said.

Thirty-two percent of households with more than $250,000 annual income plan to take more leisure trips this year than last, while only 5% said they plan to take less. This compares to the national average of 19% and 13%, respectively.

4. Aging demographics brings new opportunities
“This is a wonderful opportunity for any hotel operator that caters to leisure travelers,” Yesawich said of this next insight.

More than 20% of active travelers are grandparents. Of those, 40% have taken a trip with a grandchild during the past year. And eight out of 10 times that a grandchild comes along, so does a parent.

The cruise industry has been taking advantage of this multigenerational travel trend for the past decade by offering second, third and fourth cabin rates, Yesawich said. The hotel industry would be wise to do the same.

5. Traveler sentiment is strong—and looks to stay that way
MMGY Global polls 2,300 households across the country every six months to ask about travel intentions. The resulting Traveler Sentiment Index, which was set at 100 during 2007, measures six factors, such as availability of money to travel and the perceived affordability of travel.

During February 2012, the index was at 93.6, Yesawich said. By way of comparison, the index’s lowest reading of 78.2 came during October 2008.

“The TSI seems to have stabilized,” he said. “We don’t see any potholes potentially on the horizon for 2013 from the consumer’s point of view.”

The lone exception, he added, were the suspension of the Bush-era tax cuts, which a portion of the respondents said would impede their ability to afford travel.

6. Vacation is stilled viewed as a birthright
Three-fourths of Americans agree that taking a vacation is one event they look forward to most each year. In other words, it’s a birthright, Yesawich said.

The most important thing on Americans’ “to do” list for 2012 was to get healthier, which was cited by 58% of respondents. Next on the list was to become more financially stable (45%), followed by seeing more of the world (37%).

“This perception has eclipsed a perception that consumers have embraced for many years … which is to spend more time with friends and family (29%),” Yesawich said.

7. Millennials: A whole new breed
Millennials are proving a fickle group, Yesawich said. They show up to a hotel, give solid ratings in all aspects when such feedback is deserved, “and in the next breath say, ‘We’re not coming back,’” he said.

That’s not to diminish the role of service but rather to introduce the idea that this next generation of travelers want to try and experience new things, he said.

Indeed, 93% of millennials said they are more likely to try new things while on vacation, while an additional 89% said they prefer to go to new destinations for vacation.

“Smart money in marketing today is no longer in trying to repatriate the existing guest,” Yesawich said; it’s to cultivate the sense of “wanderlust” that’s percolating in the next generation.

8. Frugality conveys status
While status often is conveyed by one’s material possessions, Yesawich said his firm’s research revealed a slightly incongruous finding: It’s not the possession so much as the price to obtain that possession.

In other words, “Status was conferred on the people who got the best deal,” he said.

The emergence of so many new “toys” or tools to shop rates and bargains is evidence of the trend, he said.

9. Value is still king
Despite the prevailing emphasis on frugality, value is still king, Yesawich said.

Not only did travelers say that “value for price” was the most important criteria in choosing a hotel, but they are willing to pay full price if they’re assured of the value inherent in that price.

For households with an annual income of more than $250,000, 81% agreed they are willing to pay full price on items they purchase as long as they’re guaranteed the quality and service they deserve, he said. That number was 79% last year.

10. Not all vacations are created equal
Seven out of 10 Americans have gone on a “celebration vacation,” or those that are tied to specific life events, during the past year, Yesawich said. The two most popular events are milestone birthdays and anniversaries.

These trips are typically longer and generate higher spend than an average trip, he added.

11. More people are taking last-minute trips
“More and more people are taking these last-minute trips,” Yesawich said.

Approximately 30% of Americans have taken one during the past 12 months. That number is up from the “teens” a few years ago, he said.

The average advance booking period for last-minute trips was 6.2 days.

The incidence of those taking advantage of flash sales, however, was down from 20% during 2011 to 14% this year. MMGY defines a “flash sale” as “the basting of time-sensitive offers or discounts to targeted prospects via email.”

12. Print is losing its impact
During 2011, 40% of travelers said they look for travel deals in the newspaper.

Today that number has fallen to 29%, Yesawich said.

13. Mobile usage going up … and up … and up!
During 2010 and 2011, 23% of Americans had a smartphone; today more than half do.

Tablet usage is picking up as well. Whereas 7% owned a tablet device during 2011, this year more than 27% do.

The adoption rate has been nothing short of extraordinary, Yesawich said.

“This is unbelievable,” he said. “Explosive growth of tablet devices, but we’re also discovering that people use tablets and smartphones fundamentally differently in terms of how they use them when they plan and purchase travel services.”

Whereas smartphones are used more for on-the-go search, tablets are couch-potato companions used to research travel and shop online, he said.

One out of five Americans own both devices, Yesawich added.

14. OTAs still top dogs, but meta-search engines are joining the pack
Expedia, Travelocity and Orbitz are the “big dogs” in the world of online travel search, Yesawich said. The incidence of travel to Expedia—that is, the percentage of respondents who search the site at least once—was 56% during 2010 and 52% this year and last.

Brand.com, by comparison, drew 15% of respondents during 2010, 29% in 2011 and 31% this year.

“The ones that you want to watch are the ones called the meta-search sites,” he said, highlighting Kayak in particular.

The site tabled its planned IPO after Facebook’s landed with such a thud. However, once the dust settles, Kayak will move forward, Yesawich said.

“When they get that bucket of cash, they’re going to do one thing: They’re going to bang away at advertising to tell consumers that they can go online and find all the prices they want with a couple of clicks,” he said.

15. Brands are losing their power
Thanks in part to the efforts of sites such as Kayak, brands are losing their luster, Yesawich said.

“From a consumer perspective, the importance of the brand in transactions for the past five years continues to decline,” he said. While value for price was cited by American as the most important factor when choosing a hotel, room rate came in a close second.

To make matters worse for brands, the majority of consumers are still left with the impression OTAs and meta-search engines continue to house the best prices, Yesawich said.

16. Social media still a hard sell
“The adoption rate of social sites by active travelers in terms of where they claim to be posted is nothing short of phenomenal,” Yesawich said. Seventy-three percent of travelers surveyed said they had a Facebook page, up from 67% last year.

Furthermore, 61% of travelers routinely check ratings on TripAdvisor before they conduct a transaction, he said. “That’s an amazing number.”

Increasingly more important is YouTube, Yesawich added. Today 32% of all travelers visit the video platform looking for customer reviews. That incidence number has doubled in 24 months, he added.

But despite such usage, 7% of Americans said their travel decision was based primarily on research or feedback from social networking sites, down from 9% during 2011.

LAS VEGAS—As hoteliers start planning for 2013, travel industry players are predicting the next big trends and concepts, said a group of panelists who spoke during EyeforTravel’s Travel Distribution Summit North America 2012.

Though companies are focusing on different aspects of the industry, there’s one thing everyone seems to be keeping top of mind: the consumer.

Distribution, marketing and Apple
Starwood Capital Group, for example, is going to tweak its distribution mix to keep up with the evolving consumer.

It’s the classic question, said Ash Kapur, VP of revenue management and distribution for Starwood Capital. “What percentage of spend should be online, and what percentage should be spent offline? I think we are going through that exercise now for hotels in ’13.”

“Fundamentally, we’re looking at digitizing our marketing, distribution approach in 2013,”Kapur said.

One trend the company is seeing is that intermediary bookings are growing faster than property-direct booking. It is not a bothersome issue yet, Kapur said, because he sees working with intermediaries as a partnership.

But if growth of the intermediary channel becomes significant, it will create red flags about the allocation of marketing spend.

“If it’s a partnership that’s growing faster than direct channels, we need to address it,” he said.

Rumors of Apple entering the travel industry is another distribution issue hoteliers are beginning to show concerns about, but Kapur said there’s something the industry needs to keep in mind: “The bigger question is if Apple were to get into the travel space, how would they get access to the inventory? Who provides them that inventory, and who provides them that rate?”

When it comes to distribution, hoteliers are in control of their inventory, he said.

Consumer-focused innovation
For Expedia, the main focus in 2013 will be consumer-focused innovation, according to Abhijit Pal, senior director for global strategic accounts and gaming at the company.

Expedia has to meet customers at the level which they are now in, Pal said. “They care about choice, they care about transparency and they care about convenience.”

That means investing in social and mobile, he said.

The trends the industry sees today regarding same-day and 90-day bookings might be different five years from now, which plays a role in how the company invests in its mobile platforms. It’s important to look at where the customers are and where Expedia needs to be to meet them, Pal said.

As for social, “(it) can easily become a double-edged sword,” Pal said. “On Expedia, we have to invest in social because we know our customers are social. Consumers that interface with our social sites are twice as likely to convert than those that do not.”

“Social can also be the amplification of consumer complaints. It can go either way, and you have to be prepared to invest either way.”

Catching up to consumers
Tran Hang, head of travel industry at Google, said 2013 will be the year of catching up to consumer behaviors.

“We’re going to see mobile this year represent 35% of all searches. Next year, it will be about 45%,” Hang said. “These are outstanding growth rates we can’t ignore.”

Part of the search experience for consumers is finding room availability and pricing information, she said. “Part of what we want to do is more than you see today.”

What Google is seeing in its data is that its users want something really experiential, Hang said. In thinking about how to scale and differentiate what consumers want, it becomes less about the experience and more about delivering the rate expectation to the customer.

“We see that as a very large data challenge,” Hang said.

Part of that challenge will be working to get data from third-party providers and even partners within the travel industry, she said.

Experiential travel
Consumers don’t want the same thing as everybody else, said Travis Katz, founder and CEO of Gogobot, a travel-related social network.

“Everyone’s an individual, they like choice,” Katz said. On top of that, “consumers are very, very time constrained, and they’re price sensitive.”

Google is the dominant player in the search space, he said, but information overload also overwhelms consumers.

What Gogobot will focus on in the coming year is how to make experiential travel preferences easier to discover. “It’s just too much information … not enough time,” he said.

“I think setting the right expectations is important, but the question is: What is the right data to communicate?”

By working with partners and continuing to focus on unlocking consumer data, Gogobot sees opportunities to help travel consumers make easier decisions in the mobile space.

Yes, it is that time of the year again. Next year’s marketing budget is on the line and hoteliers are frantically trying to pick the top revenue-generating initiatives to focus on during 2013.

This year, Google says 94% of travelers are accessing hotel information online, and PhoCusWright says 55% of all leisure and business travel bookings will be done online, so, the online channel is where your potential guests are. No wonder Starwood Hotels & Resorts Worldwide announced earlier this year that 75% of its brands’ marketing would be spent in the digital space.

Max Starkov

Yet, this year U.S. marketers will over-spend some $20 billion (according to KCPB) in print advertising, and under-spend the same amount in Internet and mobile advertising initiatives.

This portion of the budget should include year-round digital marketing initiatives, which are proven winners regardless of the economy or latest trends.

• Search-engine marketing on Google and Bing/Yahoo;
• search-engine optimization initiatives, such as new content creation or inbound linking initiatives;
• cost-per-click programs such as “show prices” CPC program on TripAdvisor;
• soLoMo (social, local and mobile) allows the hotel to deliver personalized content to guests and customers in real time;
• mobile website and mobile marketing has earned a spot in the core initiatives, with U.S. bookings via the mobile channel expected to exceed $2.16 billion in 2013, according to PhoCusWright;
• email marketing;
• remarketing and retargeting. The Google Display Network offers the ideal balance of re-targeting text ads and banner ads;
• online videos of your hotel and its amenities influence travel decisions and increase conversions on the hotel website; and
• online reputation management and presence in leading social media and review sites.

2. Business-needs driven multi-channel digital marketing campaigns (recommended share of the 2013 digital marketing budget: 20%-25%):

It is not just about having any hotel website. Today's hotel website needs fresh content, rich media and current promotions. The hotel's special offers, promotions and packages need to be marketed across all channels, from the desktop website to the mobile site and social media. Your old and tired 1- to 2-year-old website cannot possibly meet the new requirements and most likely has dropped off the map, experiencing deteriorating conversions, bookings and search rankings.

Conclusion
In 2013, the hotel’s digital marketing budget should be separated into three silos. The core of the budget should focus on return-on-investment-driving basics; include flexible funds for unforeseen challenges and business-driven needs; and set aside a portion for website upkeep and operations.

Max Starkov is President & CEO of HeBS Digital, a full-service digital marketing and direct online channel strategy firm based in New York City.

Max has spent 30 years in hospitality and travel, with an extensive Internet marketing and online distribution experience. He co-founded and served as CEO of three e-commerce travel companies: Travelbreak.com, WhaleMedia.com and HeBS Digital. Max received the HSMAI “Top 25 Most Extraordinary Minds in Sales and Marketing” in 2008 and since 2010 has been serving on the HSMAI Digital Marketing Council. He has an MS in Economics of International Tourism & Hospitality and an MBA degree, Beta Gamma Sigma Honors, from Fordham University in New York.
The opinions expressed in this column do not necessarily reflect the opinions of HotelNewsNow.com or its parent company, Smith Travel Research and its affiliated companies. Columnists published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

The Hilton Garden Inn New Orleans French Quarter/CBD was acquired by a joint venture of Carey Watermark Investors and HRI Lodging for $22.8 million.

REPORT FROM THE U.S.—When Brian Stage was named president of Wedge Hotels Corporation in January 2010, his mission was clear: Find opportunities to grow Wedge’s portfolio.

Two and a half years later, Wedge made its first acquisition under Stage’s leadership. The company acquired for an undisclosed sum four Hilton-branded hotels in secondary U.S. markets.

Wedge, now with eight hotels in its portfolio, has been careful to ensure it is chasing the right targets and that the economics on any potential deal work. “It’s a long road, and it should be,” said Stage, formerly the president of Carlson’s Radisson brand. He added that the company sees good value looking in secondary and tertiary markets partly because those locations were not hit as hard during the downturn.

Brian Stage Wedge Hotels Corporation

While Stage and other sources interviewed for this report said they’re seeing opportunities to acquire hotels, transactions data reveals a less active deals picture. According to numbers released by STR Analytics’ Hotel Transaction Almanac Midyear 2012 Update, there was nearly $6 billion in hotel transactions through June. That’s less than half the $13.1 billion in volume seen during the comparable period in 2011.

Jones Lang LaSalle Hotels, which tracks deals of $5 million and higher, saw deal volume of approximately $5.7 billion through the first half of 2012, down 30.5% from $8.2 billion through the same period a year ago. JLLH does not include recapitalizations, foreclosures or the recently announced $1.9-billion acquisition of the Motel 6 brand by Blackstone Group in its analysis.

“Investors are very enthusiastic about hotels as an investment class,” said Gilda Perez-Alvarado, senior VP at JLLH.

Financing challenges
An overall lack of transaction financing has been a stumbling block for deals in the past, though the debt market is loosening, sources reported.

“Debt is definitely available; it’s more so available than last year,” Perez-Alvarado said. She added that qualities lenders are looking for in a deal include strong in-place cash flow for the asset in question and strong sponsorship.

Michael Medzigian Watermark Capital Partners

Since beginning operations as a non-listed real-estate investment trust in March 2011, Carey Watermark Investors closed on six hotel transactions, said Michael Medzigian, chairman and managing partner of Watermark Capital Partners and president and CEO of Carey Watermark Investors. In June, Carey Watermark announced the $22.8-million joint-ventured acquisition of the 155-room Hilton Garden Inn New Orleans French Quarter/CBD.

The company’s investment criteria include urban select-service properties with some degree of barrier to entry and hotels with solid cash flow. “We like the hotel investment environment,” he said.

Typically, Carey Watermark looks for debt in the 50% to 55% loan-to-cost range, Medzigian said.

“We’re seeing good availability of the kind of debt we’re borrowing,” he said. “My view is it’s a little challenging if you’re trying to be a high leverage borrower.”

REIT buying stalls
STR Analytics’ analysis showed that REITs, at one time aggressive buyers of hotel assets, are continuing to back off. Just 16% of hotel transactions were done by REITs during the first half of 2012. By comparison, 35% of deals during the first half of 2011 were done by REITs.

Pebblebrook Hotel Trust, for one, acquired three hotels through July: the Hotel Milano in San Francisco, the Hotel Vintage Park Seattle and the Hotel Vintage Plaza Portland in Oregon.

During the same period a year ago, Pebblebrook bought six hotels and also entered into a $910-million joint venture with Denihan Hospitality Group to acquire six Manhattan hotels.

During the company’s second-quarter conference call with analysts, Pebblebrook’s Chairman, President and CEO Jon Bortz appeared confident deals were a possibility for the second half of the year. The REIT owns 23 hotels (17 wholly owned) comprising 4,162 rooms.

“I think what we can say is that the activity level in the second half for the industry and hopefully for us will be significantly higher than it was in the first half,” Bortz said. “We've seen a very positive momentum in the number and quality of assets in the major gateway markets that we have an interest in, and we believe that (we) will continue to get at least our share in both on-market and off-market transactions.”

Plenty of opportunities
While transaction volume isn’t as robust overall as it has been in the past, sources said they are still seeing opportunities aplenty.

“I think the second half of the year is looking pretty interesting,” Perez-Alvarado said. Private-equity firms will be big players on the U.S. transactions scene and REITs are likely to be busier during the second half of the year, she added.

JLLH expects hotel transaction volume in 2012 will at least match 2011 with an estimated $15 billion in deals.

Medzigian said Carey Watermark has a strong deal pipeline from which to work. “Things are getting more active now,” he said. “I don’t think it’s a decline, but I don’t think you’ll see transaction volume double.”

Stage shared a similar sentiment: “My perception is it’s not necessarily slower,” he said. “I actually think things are continuing to bubble along.”

If you listen to the hotel industry pundits, you would think the world is wonderful and getting better. They predict 2013 will be even better. I might have been a bit early a few months ago predicting results in the hotel industry are disconnected from reality, but now it should be apparent to all who have their head up and are looking forward that my revenue-per-available-room prediction of 3% was just a little ahead of itself.

In January 2008, when I predicted the hotel industry would have a negative RevPAR in 2008 and much worse in 2009, many people thought I was nuts. Well here we are again. Many people thought, and still do think, my prediction early this year that RevPAR growth would slow in 2012 was way off base, but let’s look at the real world and not what the dreamy hotel pundits are saying.

Recent headlines include:

• Iran plans to disrupt oil trade;
• Syrians flee Damascus and Aleppo;
• Leon Panetta says Syria is spinning out of control;
• Susan Rice, the U.S. ambassador to the United Nations, said if Syria collapses then the entire region could be pulled into war;
• Israel stated it intends to strike back at Iran for Bulgaria;
• the U.S. and Israel stated publicly they are preparing a military incursion into Syria to grab the chemical weapons;
• Israel has put its military on alert to protect against an incursion from Syria or Lebanon;
• twenty nations announced a naval exercise in the gulf in September in preparation for Iranian attacks on tankers; and
• the leadership of the Syrian military was assassinated.

If things continue to come apart for Iran, the chance of another attempted terror attack in the U.S. rises, and an attack on Saudi Arabian and other oil facilities rises exponentially. The Pentagon has said very publicly they anticipate such an act. Iran becomes isolated when Assad falls, and they are irrational and feeling trapped—that is very dangerous for a religious-driven dictatorship.

Then we move to Europe. Spain might need a total bailout. The Europeans still can’t agree exactly how to save the Spanish banks. The Bundesbank has expressed strong disagreement with the Draghi bond-buying program. The euro continues to decline. Patty Murray, a Democrat leader and senior U.S. Senator from Washington, stated unless the Republicans do what she demands on raising taxes, she will drive the country over the fiscal cliff to get her way. (That might be one of the most irresponsible statements ever made by a Senator).

A Wall Street Journal headline said it all: “Weak Economy Heads Lower.” Gross domestic product is barely 1.5% and headed slower. Wells Fargo projects an even worse third quarter. Retail sales declined more than anyone expected. Factory orders are now declining. Business spending is declining. Jobless claims are rising again. Congress is doing nothing. President Obama is busy campaigning and not governing. Federal Reserve Chairman Ben Bernanke stated the economy is doing worse than he predicted just a short time ago. Even the White House has reduced its economic growth projection, which already is far above all other economic projections. True unemployment and underemployment went up to 14.9% in June. It is going higher. There is talk of maybe another recession from some rational economists. There is new talk of Greece not being able to stay in the euro.

The gap in group business
All of that is right out of the newspapers of just the past week. None of it is my making stuff up, nor an opinion of mine. It is the real world beyond the hotel-pundit dream world.

Many of my friends running hotels say: “But the group business remains good!”

Here is that reality from a top event planner who runs more than 700 events this year alone for her company. Late in 2011 and early in 2012, when everyone thought the world was getting better, a lot of companies booked a lot of group business for the year. They signed contracts, spent money and had big plans. Now they have looked at all these contracts and concluded they already paid the deposits and other upfront costs, and there are cancellation fees, so they might as well go ahead with what is booked.

However, planning is now just getting underway for 2013. Every single event undertaken in 2012 is being looked at in detail by the finance departments to assess its validity, who was invited and why, potential cost reductions, what events can be cut out. The finance managers, not the marketing people, are in control now.

2013 is going to be a very different year for group business, and it is not going to be up by the time next year is underway. If the international news events described above play out as the headlines predict, then cancellations will happen in a major way. Travel will decline. The pressure to reduce rates will ramp up.

While all of this happens, food costs are going to ramp up very badly because of the drought. Insurance and energy costs will go much higher than they are currently. The cash-flow squeeze will become clear.

If I’ve said it once …
Like many of my friends in the hotel industry, you can say this is all Chicken Little; things in the hotel industry are very good and getting better. That is exactly what everyone told me in January 2008 when I said things were going to get terrible.

I continue to advise: Conserve cash, cut costs now, do not expect to raise average daily rate next year, plan for much higher operating and food costs. If you are working on a financing, get it done sooner rather than later. If things in the Middle East or Europe blow up, the debt and equity markets will freeze up just as they did in 2009.

Get ahead of the wave that is coming. If you plan and act now, you will be fine. In 2008-2009 nobody was ready for what happened. You are a fool if you are caught this time. Don’t buy into the dreamy predictions of more RevPAR and value increases into next year. Don’t get fooled by the current level of group bookings. Be prepared for the tough times.

If I am wrong and all these world problems go away, you will be ahead of the game. You will not have missed an opportunity. The opportunity cost is a fraction of the potential risk cost if I am correct. There will be plenty more deals next year and in 2014. You need to make a risk adjustment to your return parameters before you do your next deal to make sure it can be worthwhile if the black swans do prevail.

The good news is the U.S. is the best place to be in the next few years. There is now a very strong banking system and loads of liquidity in the system. A lot of people outside the hotel industry are preparing for bad times and conserving cash. U.S. corporations never had so much free cash on their balance sheets and such low-cost debt. Few companies or even individuals are over extended this time. U.S. consumers are still cutting their debt. The housing market has stabilized. Capital is rushing to the U.S. from Europe, the Middle East and China. This is the safe haven.

If you prepare now and stay liquid and careful, you will be fine. Acquisition opportunities in 2013 and 2014 will be very good. By the Lodging Conference in October things will be much clearer as to what Syria and the whole of the Middle East looks like. It will be interesting to see what the dreamers are saying then. Continue to watch my one metric: the 10-year Treasury yield. When it gets very low, things are about to get very bad. It is now at a historic low.

Joel Ross is principal of Citadel Realty Advisors, successor to Ross Properties, the investment banking and real-estate financing firm he launched in 1981. A pioneer in commercial mortgage-backed securities, Ross, along with Lexington Mortgage and in conjunction with Nomura, effectively reopened Wall Street to the hotel industry. A member of Urban Land Institute, Ross conceived and co-authored with PricewaterhouseCoopers The Hotel Mortgage Performance Report. Ross is also the author of Ross Rant, a commentary on the economy, financial markets and politics that is available through his website, www.citadelrealty.com.

The opinions expressed in this column do not necessarily reflect the opinions of HotelNewsNow.com or its parent company, Smith Travel Research and its affiliated companies. Columnists published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

Neil Freeman, Aries Capital

CHICAGO—Neil Freeman didn’t dance around the issue during Wednesday’s closing session of the Midwest Lodging Investors Summit.

While the sentiment has been broached at numerous hotel-industry conferences throughout the past year, Freeman was as blunt as possible when asked by moderator John O’Neill of Penn State University to give one piece advice to hoteliers looking for financing.

“To not be so greedy,” the chairman and CEO of Aries Capital told the 250 attendees of the session. “If you can get a 5% interest rate, somebody wants 4.5, then it balloons to 7. Take what you can get.”

Other panelists were just as succinct:

• Michael Medzigian, chairman and managing partner of Watermark Capital Partners: “Never leverage above 65%. Sixty-five percent has been my lifelong limit. You get in trouble when you go above it.”

• Chris Diffley, managing director of RockBridge Capital LLC’s investment management group: “Position yourself for flexibility. Who knows what’s going to happen in the future.”

• Chris Williams, VP, originations-hospitality for GE Capital Americas: “Keep leverage under 70%.”

Reginald Heard Bankers One Capital

• Reginald Heard, president and CEO of Bankers One Capital: “Preparation. Have identified equity in place before you go to the lender. That’s critical.”

Upbeat about lending
The panelists were mostly upbeat about the lending environment in the hotel industry, saying financing is available for deals that make sense.

“I have felt bullish about lodging for a good, long time,” said Medzigian, whose company has acquired three hotels during the past 45 days. “There are a lot of things happening, like 100 million Chinese travelers who weren’t traveling before and are now. And there’s low supply growth. We’re still buying assets at below replacement growth.”

However, inflation, global economic troubles and uncertainty in the U.S. political and regulatory arenas have the executives slightly nervous about while lies ahead.

Williams said his biggest worry is the crisis in Europe and to a lesser extend the slowing economy in China and India. Heard pinpointed the threat of inflation as a key issue.

Medzigian said the gridlock in Washington has no foreseeable end. “I’m not sure when or how we come out of it,” he said. “But the lodging space will outpace the economy for the near future. … We think we have a good, long cycle ahead of us.”

Freeman said there are many positives about the hotel industry as long as supply growth is held in check. “And there’s finally some green shoots in fixing the housing mess for the first time,” he said. “The bottom has been hit in many markets.”

Diffley said he is bullish on the hotel transactions market as long as nothing happens to turn U.S. economic growth negative. “I’m not sure what that is, but a lot of things keep you wondering,” he said.

Freeman said there is quality debt priced up to 70% of value on the cash flow of assets in major and secondary markets with good brands. “When you veer off good brands or cash flow, then it becomes more opportunistic,” he said.

For a detailed look at how these panelists are seeing lending deals being structured, check out the 24 July issue of the Hotel Investment Barometer, which is available to paid subscribers.

Other funding sources
The panelists discussed historic tax credits and EB-5 visa money as strategic sources of funding that have been popular during the past 18 months.

Freeman said approximately half the EB-5 money nationally is coming from China, and most of the deals are between $10 million and $50 million.

The uncertain future of commercial mortgage-backed securities loans caused some concern for the panelists. O’Neill said “only 32% of CMBS loans paid their balloons last month.”

“There’s about $1.7 trillion of commercial real-estate coming due by 2016, and depending on how you count it, about half of it is not financeable,” Medzigian said.

Watermark is a beneficiary of distressed assets. For example, it closed on a hotel three weeks ago that used a seven-year CMBS deal with 5% interest. Medzigian said most situations call for five-year or 10-year deals, but the company felt more comfortable with seven years.

“Predominantly now it’s 10 years,” Freeman said. “The underwriting is much more stringent than the underwriting that was in place in ’06 and ’07. The market feels cash flows will be there. … It’s a very good source of non-recourse financing.”

Diffley said the big question is when will special servicers put the hotel assets they have collected during the past few years on the market.

“Can you jar them loose?” he asked. “A lot of them are not refinanceable because of the valuations. Distressed assets are under capitalized, it’s not about cash flow now. The big trick is getting them out, but if you have money to reinvest in them there are a lot of good opportunities.”

No building boom in sight
Supply growth will be held in check if lenders continue to keep financing locked. Freeman said Aries has financed several construction projects.

“It’s a two-tiered market,” he said.

He said major banks will finance strong borrowers building $50-million to $100-million select-service assets in urban markets. Terms tend to be 65% loan-to-value with interest rates at 325 to 350 basis points over Libor.

“But if you’re not that project, you have to find some local bank and have lots of equity,” he said.

Williams said GE can’t accommodate construction financing. Of the companies that are doing it, they tend to limit it to one or two projects because of capacity issues.

“On the equity side, us putting equity into construction today, we’re not going to do it,” Medzigian said. “The only way we are is if there is lots of free money, city incentives, tax credits, money from the franchisor for big project.”

The continuing strong room demand through the first half of 2012 is the reason for rising occupancies and more pricing power for U.S. hoteliers. At the same time, however, the number of rooms in the under-construction pipeline is still very low, standing at approximately 60,000 as of the end of May 2012. Companies face the dilemma of needing to grow their respective stable of brands with barely any new hotels to flag. To grow in this environment, owners must be persuaded that their current brand is no longer “right” (whatever that means for the parties involved) and to change franchises, ultimately converting from one flag to another.

This article looks at the historic patterns of room conversions in and out of the STR chain scales. We are focusing on the most recent past, starting in the year 2000. This allows us to understand one full cycle, from the recessions in 2001 and 2009, and the impact on conversions. For this article, we are only discussing conversions that had both a change in flag and a change in scale. For example, we’ll look at conversions from an upscale brand to an upper-upscale brand. Obviously for a number of flag changes the scales stayed the same. In other words, the brand change was within the scale (e.g. from midscale to midscale). These intra-scale changes are not shown in the numbers for this article.

Table 1 shows the number of rooms that were brand conversions and in the process changed chain scales.

After a low point of fewer than 145,000 converted rooms in 2002, the peak conversion activity was reached in 2006 with just under 225,000 converted rooms. From that peak, the number of converted rooms decreased again in 2010 to fewer than 175,000 rooms.

The conversion numbers for 2011 are somewhat inflated and in need of some additional explanation. That year Best Western decided to create a new brand in the upper-midscale segment, Best Western Plus, and to convert some of its existing Best Western hotels to that brand, increasing the number of properties converted from midscale to upper-midscale. As of May 2012, some 66,000 rooms were flagged as Best Western Plus, with most of the activity taking place during the year 2011. Subtracting the Best Western Plus conversion activity of 66,000 rooms from the total of 234,000 rooms yields a number around 170,000 converted rooms—a number very much in line with the declining conversion trend since 2006. Arguably this specific brand-building exercise was a one-time event, which did not reflect changes in ownership but simply a corporate realignment.

Over time, the total number of rooms has increased in the U.S. as has the conversion activity as shown by the following table:

The following section outlines the conversation activity by scale, examining the number of rooms converted and highlighting noteworthy trends.

Luxury hotels
Luxury hotels, because of their fewer numbers and their capital requirements, have registered the smallest numbers of conversions each year. On average, 2,400 rooms convert in and 1,400 rooms convert out of the scale. But actual results diverge widely from this average; in the last four years, more than 1,600 rooms were converted out of the scale, culminating in 2011 with almost 3,000 rooms. It is certainly possible that financial problems of luxury hotel owners during the downturn led to a lack of spending for furniture, fixtures and equipment, which then, as ownership changed, led to a deflagging. It also is noteworthy that in only three years of this series, more rooms flowed out of the scale than into the scale.

Upper-upscale hotels
Over the past four years, the upper-upscale chain scales registered decidedly less activity than in the early 2000s. In 2010 and 2011, fewer than 10,000 rooms were converted into the scale, and since 2008, fewer than 10,000 rooms were converted out of the scale. Interestingly, leading up to the height of the boom in 2005 and 2006, the chain scale saw a massive outflow of rooms, with more than 20,000 in each year. The lack of activity in this segment could speak to the need of an upper-upscale hotel owner to maintain the reservation system and loyalty program of the brand to fill these oft-large hotels. Therefore, owners are probably trying to remain in this scale, if not with the same flag, at almost any cost.

Upscale hotels
In the upscale chain scale, the trend of conversions in and out the scale has been remarkably similar. On average, 15,000 rooms enter and 15,000 rooms leave the system each year. The highest activity was recorded in the year 2007, the peak year for the industry, pointing at a continued desire for brands to strike while the iron is hot and increase their room counts while the performance metrics for these hotels were very favorable.

Upper-midscale hotels
As mentioned above, the upper-midscale chain segment has seen an enormous influx of rooms in 2011. This influx ran counter to the prevailing trend over the observed time period where in every year (but the last one) more rooms exited than entered the scale. On average, 32,000 rooms left the scale and only 24,000 were newly flagged. In the years 2006, 2008 and 2010, more than 40,000 rooms left brands associated with this scale. To exclude the Best Western Plus conversion activity and get a better sense of actual influx, we can subtract those 66,000 rooms from the 76,000 total converted rooms. This yields a very small net inflow of 10,000 rooms into the category.

Midscale hotels
The midscale category conversion number in the last year is almost exactly the reverse as the upper-midscale data, as Best Western hotels changed scale. Some 88,000 hotels changed out of the scale while only 32,000 rooms converted in. On average, this scale saw a net rooms outflow over 11 years. Also, on average 40,000 rooms were converted out and only 28,000 were converted in. However, it is remarkable that during the period between 2005, 2006 and 2008, the net outflow was fewer than 4,000 rooms as conversions in and out were almost in balance.

Economy hotels
In the economy scale, we observed by far the largest average room count conversions into a scale (outside of independents), approximately 39,000 rooms. However, since almost 38,000 rooms changed flags and converted out of the scale, the overall average net gain was minimal. Only in the three years from 2001 to 2003 did the economy scale actually lose rooms from conversions. In all other years, the net gain ranged from 200 rooms in 2010 to almost 9,000 rooms in 2007.

Independent hotels
Since the independent chain scale characterizes all non-chain affiliated hotels, it is the largest scale with roughly 1/3 of the total U.S. room supply. Not surprisingly, the conversion activity in and out of the scale also is the largest with, on average, approximately 62,000 rooms converting in and some 46,000 rooms converting out. In each one of the years since 2000, with the exception of the year 2009, more rooms converted in than out. Conversions into the scale peaked in 2005, with approximately 75,000 rooms, and after the recession in 2010 with around 70,000 rooms. This most recent activity is probably a sign of hotels losing their flags because of financial troubles in their respective ownership groups. In 2005, around 18,000 rooms were lost by the upper-midscale chain scale; some of these rooms probably added to the increase in independents that year.

Overall, approximately 183,000 rooms are converted in and out of a scale every year. This does not take into account intra-scale conversion, so the overall number of flag changes most likely is quite a bit higher. The highest average conversion activity takes place with independent hotels and the lowest in the luxury chain scale. Upper-midscale and midscale data is slightly skewed because of the Best Western reclassification to Best Western Plus, but for prior years it was within the same range between 20,000 and 27,000 rooms for both scales. From our data, it is clear that brands continue to look for fast ways to build critical mass and portfolio strength. Therefore, reflagging existing properties will continue to be a critical tool to increase room counts.

BALTIMORE—Social media might be all the rage, but it remains to be seen whether it can generate revenue for hotels.

“There is an absolute way to make money out of it, but we need to crawl before we walk in the social-media space,” said Ash Kapur, VP of revenue management & distribution for Starwood Capital Group.

The challenge, he said, is figuring out how to drive the significant traffic generated through social-media platforms to the company’s brand websites.

Ash Kapur Starwood Capital Group

“It’s up to us as revenue managers to make sure we get them to our site, we invite them back so they actually book,” he said. “What I am seeing today is that, yes, there is a way to monetize it, but so far the stage that we reached is to get the traffic from Facebook to our site.”

Though social media continues to evolve and improve, the jury is still out regarding when—and if—there is money to be made from social networking, according to revenue-management experts during a roundtable discussion conducted by HotelNewsNow.com following the Hospitality Sales & Marketing Association International’s recent Chief Revenue Officer Roundtable event.

Weighing the pro and cons
Sloan Dean, VP of sales & marketing for Interstate Hotels & Resorts, looks at social media’s potential through a different lens.

“I would emphasize that the reason I short sell Facebook stock is it is tough to monetize,” he said. “It’s very time-consuming. It’s very labor-consuming. So those are the things to always keep in mind when you step into the space.”

Dean said various social-media sites have various values as business generators. Facebook can be a “decent resource for certain pieces of social reunion or wedding business. It’s very specific in that regard,” whereas LinkedIn “is very good for salespeople to prospect on.” And a correlation exists between TripAdvisor rankings and a hotel’s conversion rate on Interstate’s website.

Neal Fegan, executive director of revenue management for Fairmont Raffles Hotels International, said his company has had “some humongous successes” in the social-media space. However, he said “being able to forecast (the success of social media) at this point impossible.”

Revenue-generating campaigns on social-media outlets aren’t always about offering rock-bottom prices for hotel rooms, Fegan said.

“Sometimes you put a price point out on something and it takes off like wildfire. It becomes viral, and you get so much business that’s above and beyond that it shuts stuff down—websites crash, and it halts everything,” he said. “Other times you go out with a very similar offer, and it does absolutely nothing. So helping to determine what those triggers are, we’re still not very smart about, (but) we’re getting smarter.”

The key is staying with it because it is a constantly changing environment and no one knows what future technological developments will bring, Fegan said.

“It’s putting a lot more power back into our guests’ hands and a lot more information,” he said. “At some point in the future we’re going to be seeing a combination of the social-media sites with search. They’re going to kind of meld into one.”

That search component is particularly important, Dean said. As search-engine algorithms become more progressive, a property’s or brand’s social-media presence can influence where it falls in organic results.

Third-party review sites
User-generated reviews are on way to influence revenue through social media as well, sources said.

Dan Kowalewski Wyndham Hotel Group

Wyndham puts TripAdvisor ratings on all of its brand and hotel websites and has invested in tools that allow franchisees to respond to those ratings, according to Dan Kowalewski, VP of revenue management service for Wyndham Hotel Group.

“It’s part of the direct strategy to help that consumer on our direct sites have a reason to stay and convert, and we’re finding that it’s successful,” he said. “… They want to understand the price/value comparison of that hotel. They can see the rating, they can see the price, they can actually see other ratings and prices of our other brands around them in a cross-sell-like environment, and they can make an informed decision.”

When asked if it has improved reservation conversion, Kowalewski said the company has seen improvement. “It helps with the overall experience that a consumer has when they come to our branded sites,” he said.

Greg Cross, senior VP of revenue management for Hyatt Hotels Corporation, said implementing those third-party ratings on a brand’s websites is a good thing, but he believes consumers will question the validity of the posted comments. Social-networking sites provide a more transparent platform for guest reviews, and Cross said he sees that as the next step in leveraging social media.

“The highest level of trust isn’t from someone that you don’t know, it’s from your own network of people,” he said. “As that becomes easier to do, that’s going to make TripAdvisor irrelevant. People are going to say, ‘Well, I don’t care what other people are saying. I care about what my people are saying.’”

REPORT FROM THE U.S.—Looking to cut travel expenses for the federal government, the U.S. General Services Administration is re-evaluating its methodology to calculate federal per-diem rates. And the changes could have a widespread impact on the hotel industry.

The GSA is looking at a number of potential options that would result in per-diem decreases in most markets. While the agency maintains it is looking to responsibly trim budget costs just as any corporation would, some hoteliers fear dramatic per-diem decreases would cripple business and come with a bevy of unintended consequences.

“The GSA staff is definitely evaluating change to the per-diem methodology. It appears that change will be implemented and in place by October,” said Mark Carrier, president of Washington, D.C.-based B. F. Saul Company Hospitality Group, which owns and operates full-service and select-service hotels, many of which are located in or around Washington, D.C. “In business-class and high-demand markets, a significant change will have a major impact.”

Multiple sources said the GSA expects to announce its changes in methodology within three weeks. A team of two GSA employees is assigned to oversee per-diem calculation, and the organization already requested new data sets from STR, which it will use to research its options in changing the methodology. STR is the parent company of HotelNewsNow.com and has been supplying hotel data, mainly average daily rate, to the GSA since 2003.

According to sources, the following options are on the table:

• Freeze the current per-diem rates and keep them the same for fiscal year 2013.
• Eliminate a 25% flexibility federal employees have when they can’t find a room at the per-diem rate.
• Change the methodology by which the GSA calculates the per-diem rate by eliminating upper-upscale hotels from the equation.

Carrier said freezing rates is unlikely because the government wants fluctuation to remain based on market data. Changing the methodology is most likely, he said.

Dan Cruz, a spokesman for the GSA, declined an interview but provided the following statement: "No determination has been made yet on new per-diem rates. The GSA is reviewing per-diem rates for fiscal year 2013. The GSA will implement the directives in the Office of Management and Budget memorandum concerning agency travel and conferences. This includes decreasing spending on agency travel in fiscal year 2013 by 30% compared to fiscal year 2010. We will continue to engage our industry partners as we undertake this review of per-diem rates."

In a presentation to members of the hotel industry prepared by the GSA, an example of the new methodology showed the federal standard per-diem rate decreasing from $136 to $107.

“I think the government is looking for ways to cut costs in all categories of spending, so it makes sense they would cut the travel budget,” said Erik Hansen, director of domestic policy for the U.S. Travel Association. “We have an alternative view on whether cutting per diems is an effective way to do that.”

Mark Crisci is co-president of K Partners Hospitality Group, which develops, owns and operates midscale through upper-upscale hotels in the Southern and Western regions of the U.S., many in tertiary cities near military bases that serve a large number of per-diem travelers. Crisci said hotel performance in the group’s portfolio would not be sustainable if per-diem rates were discounted much more.

“In a time where government is imposing so many things on small businesses, when they’re making it more expensive for us to do business, to come back around and rig this and provide downward pressure on rate is ridiculous,” he said.

New methodology
The GSA reached out to members of the hotel industry in late June to discuss potential changes to its methodology, and hoteliers immediately raised concerns with the American Hotel & Lodging Association, suggesting the new methodology could result in per-diem decreases of 20% to 30% in some markets.

The AH&LA consequently met with the GSA on 26 June and expressed concerns over detrimental effects to the hotel industry. “It was a very good discussion; the GSA members were receptive to our concerns,” said Shawn McBurney, senior VP of governmental affairs at AH&LA.

The GSA at present receives ADR data from STR on more than 12,000 U.S. hotels from April to March in each of the following chain scales: midscale, upper-midscale, upscale, upper-upscale and luxury. Luxury properties are not included in the methodology unless they are priced lower than the highest midscale property in that respective market.

The GSA analyzes that data, determines the average price of a hotel, subtracts 5% for what it considers an average group-volume discount, and then notifies Congress of the fiscal year per-diem rate change.

Hoteliers can file appeals to their respective per-diem rates, though the appeals process must be initiated by a federal agency.

One proposed revision to its per-diem calculation would eliminate upper-upscale hotel data from the mix, bumping down the average rate.

“The problem with a methodology like that is it’s based on semantics,” McBurney said. “That top level isn’t luxury. A lot of people unfamiliar with the classifications don’t understand that. An upper-upscale hotel is your standard full-service Marriott. That’s 85% of the hotels in (Washington) D.C.

“If you take those rates out of the calculations, you’ve got an artificially depressed rate,” he added.

“The issue of the nomenclature is in fact important,” Carrier added. “Calling it upper-upscale makes it easy to eliminate. The names of those sets don’t reflect what’s in them. The idea of a corporate traveler staying in an upper-upscale hotel makes it seem like they’re staying in some lavish property, but really they’re just business-class hotels.

“Elimination of upper-upscale hotels would take out a significant portion of the inventory of most business-class locations.”

Carrier suggested a fourth option: increasing the volume discount from 5% to a higher level to reflect the GSA purchasing volume. He said it would solve the problem of cutting travel costs without creating an artificially depressed rate, and he has recommended this to the GSA.

McBurney said the GSA will meet with the AH&LA again before making a final decision, which is expected in no more than three weeks.

Hotelier reaction
Crisci, of K Partners, said he’s lost confidence in the U.S. governmental authority—particularly organizations including the GSA and Department of Defense—because he said they’re making decisions without truly understanding the ramifications.

He said K Partners has been very proactive in military markets, recognizing a need for newer branded lodging facilities with interior corridors and more modern Internet access.

“We’ve evolved our offerings—the bases have evolved—and they’re bringing in well-paid, high-caliber people accustomed to staying at a certain lodging facility,” he said.

Crisci has been very active in lobbying the GSA to raise the per-diem rates. Lowering the per-diem rates even further could leave K Partners no alternative other than shutting out government travelers altogether and not offering the per-diem rate.

“We’ve had to implement policies at some of our hotels where we don’t offer the per-diem at all, or it’s very much restricted. We just can’t make any money on it,” he said. “With the cost to develop, the cost to brand, the cost to take care of the guest, you just can’t make money at $77 per night.

“I don’t think anyone at the GSA truly understands how the lodging market is segmented today,” he continued. “We’re not trying to get $200 to $300 out of these guys, we’re just asking for a fair rate.”

Effects on price
While some hoteliers would suggest they base their pricing decisions on market demand and not one specific group of travelers, markets that cater to government travel certainly take per-diem rates into consideration when pricing their inventory.

Carrier said federal per-diem rates play a large role in pricing rooms in the Washington, D.C., market.

“In Washington, travelers on the federal per-diem make up a significant part of the market. That price becomes a market-making price,” he said. “They are the only consumer we do business with that can name their own price.”

“Anyone in these markets who doesn’t factor (per-diem rates) in either missed something or is not being completely transparent,” Crisci added. “The issue in D.C. is that if you don’t offer (rooms at the per-diem rate) there are 100 others that will. The GSA knows that.”

Sources said it is not only federal employees who travel on the GSA’s set per-diem rate. Many private-sector companies and government-contracted workers use the federal per-diem as a standard for their corporate travel as well.

Carrier said if the methodology results in large-scale per-diem decreases, government travelers will be limited to only essential travel. “They won’t be able to be close to where they need to do business,” he said.

“The concern is we may have a major partner in our business that is impacted in where and when they can travel and what price they’re willing to pay,” Hansen said.

Timing
Annual per-diem rates are typically announced in August and go into effect 1 October, the beginning of the federal government’s fiscal year. Per-diem rates will be announced in August this year even if a new methodology was adopted.

The GSA’s per-diem-methodology discussion comes just three months after the organization was hit with accusations of lavish spending during a 2010 conference off the Las Vegas Strip, which resulted in the resignation of its chief and two of her top deputies. While the industry lobbyist organizations interviewed for this story were reluctant to link a revised per-diem methodology with the recent scandal, Crisci pointed directly to a correlation.

“We all saw pictures of that moron sitting in bathtub overlooking The Strip,” he said. “When I see that sort of waste and we’re watching every dollar we spend to take as best care of our employees as we can … are you kidding me? The same people who had zero accountability, zero respect for dollars, are now beating up the guys who are just trying to make a decent living.”

BALTIMORE—As the distribution landscape continues to fragment, revenue managers are being tasked with keeping tabs on the latest and greatest new platforms.

But are all channels created equal? Attendees during a workshop at HSMAI’s Revenue Optimization Conference had mixed reviews as they discussed the following five discount models.

1. Backbid
As HotelNewsNow.com has written in the past, BackBid is a hotel booking site where travelers post their existing hotel reservations and accept bids from alternative properties to find the best value for their upcoming hotel stay.

The channel empowers consumers to find the best room for the best price, knowing all the details about a given property before accepting a new bid. There’s no risk involved, as they can deny any bid and keep their existing reservation.

While the site touts its focus on confirmed travelers and ability to sell distressed inventory as a plus for hoteliers, attendees of the HSMAI workshop were not as impressed. At its best, they said Backbid allows them to possibly unload inventory at a low yield. At its worst, they said the channel encourages a downward spiral, with competitors outbidding each other with lower and lower rates.

2. Guestmob
The semi-opaque Guestmob allows guests to choose from a collection of hotels in select cities.

Here’s how it works: A guest registers on the free site and then searches within one of 20 select U.S. cities by date. Guestmob produces a list of “collections” that typically include from four to eight similarly rated and located hotels, which guests can view by name.

A recent search for hotel rooms in Chicago, for example, yielded, among others, a collection for “The Loop-Downtown,” which offered a room rate of $157 for eitherThe Wit, Swissotel, Hyatt Regency, Fairmont Millennium Park, Hotel Allegro and Palmer House Hilton.

Only after guests confirm the booking do they see at which hotel they’ve actually made the reservation.

The channel streamlines the booking process for guests, arranging hotels in like-minded, curated clusters as opposed to a list hundreds of properties long on most hotel booking engines. It also allows travelers to peak past the curtain of traditional opaque channels and see at which properties they might be booking. Bookings made on Guestmob are also refundable.

Guestmob streamlines the distribution process for hoteliers, who only have to release inventory the Thursday before check-in when it’s clear the room is not being sold on other online travel agencies. Guestmob allows hoteliers to maintain rate parity with other channels and still capture full-price bookings on brand.com.

Of all the emerging channels discussed, Guestmob got the highest marks from workshop attendees, who viewed it as a potentially viable semi-opaque platform.

3. Hall St.
European channel Hall St. is where hotel distribution collides with swap meets. Guests register on the platform, negotiate rates with hotels, and then can either enjoy the pre-paid reservation themselves or sell it to other users.

The platform acknowledges that “last-minute changes are part and parcel of modern-day lift” and gives guests the freedom to change the name on their reservations or sell them to other users.

But hoteliers participating in the HSMAI workshop said Hall St. was a dead end, claiming it was too convoluted to gain a following and too labor-intensive and complex for them to devote already-strapped resources. As one attendee said, “I’d prefer to take a detour.”

4. Tingo
Another familiar distribution channel to readers of HotelNewsNow.com, Tingo monitors any changes in hotel rates travelers have booked and then rebooks them at the lower rate at no cost to the client should the rate drop (provided there are no cancellation charges).

The value to consumers is obvious: Travelers book the exact room they want and sit back and watch as the rate falls closer to the booking date.

Tingo also claims a number of benefits to hoteliers, including longer booking windows (an average of 45 days), longer length of stay, higher average daily rate and bookings made on more expensive, flexible rates.

But workshop attendees were not so sure. They feared the platform would expose weaknesses in existing discounting practices and thus erode rate. While they agreed Tingo was perhaps the most user-friendly of all the channels discussed, they also predicted hoteliers might respond by instituting more aggressive cancellation penalties to prevent rebookings.

5. Traveltipping
Traveltipping tips the booking process in favor of guests—or so the site claims—by creating unique travel packages to destinations throughout the world at a fraction of the cost. Guests start their search by selecting one of six world regions: North America & Caribbean, Latin America, Europe, Africa & Arabia, Asia and Oceania. Each region generates a handful of travel deals, such as four-night stay for two at an “eco adventure lodge” in the Dominican Republic.

Deals are quantity limited, allowing suppliers to sell what they want, when they want. They’re also marketed as packages to help drive value and increase ancillary spend. The aforementioned deal in the Dominican Republic, for example, included a kayak excursion, mountain bike ride, daily breakfast and additional taxes in addition to the hotel stay.

The goal is to help suppliers sell distressed inventory and increase seasonal revenue during shoulder periods, according to the site.

Hoteliers were nonplussed, however. Those sharing their thoughts during the workshop said there was not much about Traveltipping that stood out from either a consumer or hotelier perspective. It was yet another in a litany of similar packaged-deal sites, they said.

The hotel industry wrapped up spring on a solid note and, based on forward-looking data from Pegasus Solutions in advance of this week’s release of The Pegasus View, travel demand is going to remain healthy for the rest of 2012.

Bookings are expected to remain steady month over month with potential upticks in August and September. Rate growth also is expected to continue steadily.

“Rate strategy and channel strategy are going to be key for the summer,” said Julie Parodi, senior director of strategic planning and analysis for Pegasus and editor of The Pegasus View. “Because rates are truly driving growth, hoteliers should review and revisit their pricing strategies—how they’re pricing across their channels and allocating inventory.”

Even though the leisure channels might begin driving more demand as summer travel heats up, hoteliers still need to be wise about keeping the cost of the various channels in mind, Parodi said.

“You don’t want to be giving all of your inventory to channels with high costs, and you want to be smart about using opaque for distressed inventory,” she said.

Based on electronic booking data from approximately 63,000 travel agencies, Pegasus categorizes third-party bookings as leisure travel and bookings from the Global Distribution System as business travel.

Business demand
Average daily rate is leading growth on the business side, with global transactions in May priced 3.9% higher than in May 2011. In North America alone, rates in May were up 7.6% over May 2011.

“Companies need to outperform their competitors and in-person interaction is helping them do that,” Parodi said. “There’s no better way to build relationships.”

She said the business traveler is being selective with his or her trips and exploring more closely the worth of every cost. They’re forced by their managers to justify how travel will further boost their sales and show how their trips contributed to the bottom line.

“We know they’ve been using length-of-stay to keep costs under control,” she said. “Now there is opportunity for different-sized companies to become involved and also different locations. It’s not as critical that their meetings and conventions are in city center. Hoteliers should make sure companies know they can host these meetings without busting budgets.”

Leisure demand
On the leisure side of the industry, global rates for the month of May were up 5.6%. In North America, rates were up 4.7% against prior year.

However, the absolute number of hotel bookings made through the channels Pegasus measured continues to fall short of 2011 numbers. On both the leisure side and business side—both globally and in North America—the number of bookings grows month over month but still fall significantly shorter than monthly bookings in 2011.

“Consumers still are devoted to taking vacations, but they’re trying to get the most for their money,” Parodi said. “Location, location, location is being trumped by value, value, value. Hotel strategy comes into play in terms of researching which markets are best to target and determining the appropriate timing for that marketing.”

Parodi said hoteliers should invest heavily in promoting their hotels in markets that drive the most demand but also look to see if there are surrounding markets that offer untapped opportunities.

REPORT FROM THE U.S.—Hotel bankruptcy proceedings might look a little different going forward now that the U.S. Supreme Court has upheld the practice of credit bidding, bankruptcy attorneys say.

Credit bidding is the practice of lenders using debt to purchase their own collateral during a bankruptcy auction. The Court upheld the practice last month.

Even though credit bidding has occurred in the past, the legitimacy given to it by the Court could bring about some changes, attorneys said.

One potential change could involve the time a case is in bankruptcy proceedings. David Neff, an attorney at Perkins Coie who argued the case before the Court on behalf of the debtor, said he imagines bankruptcy cases would be shortened as a result.

“It’s not going to provide the option of proposing a sale plan over the objections of secured creditors,” he said.

“It will shorten up certain cases,” he added.

Randye Soref, shareholder with Buchalter Nemer, said that while there are already time limitations within bankruptcy cases—for instance, the debtor must provide a reorganization plan to the court within 90 days of the bankruptcy filing—the Court’s decision could have the effect of quickening the pace of negotiations between debtor and lender.

Also, sources said, lenders have additional leverage on their side when it comes to making deals for assets in a bankruptcy auction. Knowing the lender can outgun bargain hunters will shut out some potential suitors, Soref said.

George B. Cauthen, partner and chairman of the bankruptcy group at Nelson Mullins Riley & Scarborough LLP

“This decision says to debtors, ‘If you’re going to file Chapter 11, be mindful because the lender will retain the benefit of the bargain,’” she said.

George B. Cauthen, partner and chairman of the bankruptcy group at Nelson Mullins Riley & Scarborough LLP, shared a similar sentiment. He said the decision “burns off the bottom feeders” looking to buy on the cheap.

“If you know the secured creditor can credit bid … you can’t have the person thinking they’re going to get a good asset for a real cheap price,” he said.

Also, Cauthen said he expects to see an increased amount of credit bidding following the Court’s decision. “There shouldn’t be any question about it now,” he said.

Lending effect
Sources contacted for this report were split over whether lenders might be more willing to lend if they knew they had the right to credit bid should the deal go bad.

“It might make them more confident,” Cauthen said.

Soref, however, took the opposite stance. She doesn’t anticipate any effect on the credit markets as a result of the decision.

She said lenders don’t make loans thinking the deal might eventually go sour. “Nothing’s changed,” she said.

Mark Hoplamazian, president and CEO of Hyatt Hotels Corporation, said he isn’t concerned about unemployment issues affecting Hyatt’s performance during a general session at the NYU International Hospitality Industry Investment Conference.

NEW YORK—It appears the hotel industry learned something from the sudden crash in 2008: Don’t get too optimistic or too carried away about profits and performance because the good times don’t last forever.

The first quarter of 2012 started off hot for hoteliers, but five months in, the vibe on the opening day at the NYU International Hospitality Industry Investment Conference was considerably more cautious. While hotel-operating performance remains strong, a questionable economic recovery has hoteliers fearing financial market repercussions.

“The reality is we can’t be as bullish today as we were two or three months ago,” said Arne Sorenson, president and CEO of Marriott International. “The markets are a powerful read on future expectations, and right now they’re more cautious than they were two months ago.”

The first half of the year is shaping up very similar to the beginning of 2011, which started strong before hotel industry stocks tumbled. But falling stock prices in 2011 didn’t equate to a revenue-per-available-room decrease, and Sorenson doesn’t think it will this year, either.

“Let’s hope—like last year—business continues to perform strong,” he said. “I tend to think it will.”

However, concerns remain surrounding two important areas: the European debt situation and potential political effects in the United States. Many hoteliers on Monday mentioned the “fiscal cliff” expected at the beginning of 2013; saying uncertainly around government tax cuts has businesses in a holding pattern.

Sorenson said allowing Bush-era tax cuts to expire, coupled with the automatic spending cuts scheduled for 1 January 2013, will have a detrimental effect on the economy.

“The fiscal cliff in December is a profound fear,” he said. “We can’t entirely ignore what the markets are saying.”

“The outlook for business investment has been slowly but surely decreasing,” said W. Ed Walter, president and CEO of Host Hotels & Resorts. “The lack of certainly around what’s going to happen at end of year is starting to slow investment.”

Sorenson said debt issues in Europe aren’t dragging down performance of Marriott overall, however, he said it will have long-term repercussions.

“Lord knows it’s going to be years before we’re beyond the point of worry about it,” he said.

While it appears travelers—at least in the U.S.—are continuing to plan business and leisure trips despite economic worry, Jonathan Tisch, chairman of Loews Hotels, said enough negative headlines will eventually impact consumer spending.

“I do worry about consumer confidence in general,” he said.

Flipside
Moving away from the financial side of the business and focusing solely on operating hotels, leaders of the major brands are optimistic about performance.

Eric Danziger, president and CEO of Wyndham Hotel Group, said call volume at Wyndham is up 30% and web traffic up 30% to 40%.

“We believe people want to travel for both business and personal. I’m positive,” he said.

Mark Hoplamazian, president and CEO of Hyatt Hotels Corporation, pointed to unemployment concerns but said he isn’t concerned about unemployment issues affecting Hyatt’s performance. He said Hyatt serves a certain segment of the population that isn’t struggling with unemployment as much as it appears.

“The reality is the employment picture is not exactly on a durable path, but we don’t serve the entire U.S. population. For our core customer, the employment picture is actually much better,” he said. “We’ve been living in a demand environment, so the demand is there.”

However, until employment “more broadly gets in line,” he said, the U.S. won’t experience a total economic recovery.

Pricing
As demand has returned to the industry on both the business and leisure side, and with a strong summer expected, hoteliers said they are tweaking their rate strategies.

Danziger said part of Wyndham’s strategy is to engage more directly with the consumer—online and off—which will help the company drive rate.

In Dubai, United Arab Emirates, the Jumeirah Group has seen demand and pricing exceed 2007 and 2008 levels, when certain hotels were running 100% occupancy and commanding $1,000 rates, said Gerald Lawless, executive chairman. Lawless said the Dubai market benefitted from the Arab Spring because Dubai residents who typically travel to places such as Lebanon, Egypt and Syria during the summer aren’t doing so this year.

Sorenson said Marriott’s rate strategy involves effectively managing distribution, and his team is monitoring third-party distribution players.

“The online scene is remarkably fluid,” he said. “When you look around the world more broadly, you’re seeing numerous parties show up. It’s no longer just Expedia and Travelocity, now we’ve got to talk about dozens of sites around the world.”

Hoteliers agreed, however, that more online-travel agents is good for business because it means more competition and that in turn will lead to less expensive booking costs.

“We’re not trying to defeat (the OTAs),” Sorenson said, “but let’s make sure the cost of those reservations is fair.”

Last time, I wrote some tips for busy hoteliers looking to save some time executing social-media strategies. Let’s say you have the basics under control, but now you’re looking to stay ahead of the curve and your competition by reaching new audiences with the latest social-media platforms. Pinterest and Instagram are the latest big social networks making a splash, and both provide opportunities for the travel and leisure industry to boost engagement.

What is Pinterest?
If Pinterest is not already on your radar, then it should be, as Pinterest’s rapid social media popularity is a compelling reason to join. For instance, Pinterest’s unique visitors have more than tripled since April 2011. At the end of February 2012, more than 15 million unique visitors were exploring Pinterest boards.

Step 1: Get on Pinterest

If you’re the one executing your Pinterest strategy, you’ll have to know what’s going on. So, the first step is to request an invite, then create an account and sign in. Then poke around and get the feel for what other people are pinning, what kinds of things get re-pinned most and how people communicate on Pinterest.

Step 2: Set up relevant boards

“Our Hotel” is boring because it’s very inward facing. Instead, create boards that embody your brand. If you’re an environmentally friendly hotel, make boards about the outdoors. If your gardens are second to none, create gardening and horticulture boards.

Step 3: Allow user comments and pins on your board

Step 4: Follow others

Step 5: Try hosting a contest

For example, run a contest that asks users to create a board that showcases the experience they had at your hotel.

Your guide to Instagram
Instagram, which has generated a whopping zero dollars in revenue, recently was acquired by Facebook for $1 billion. While some brands already are on the platform, many have yet to dip their toes in the photo-sharing websites social-networking pool. Naturally, this massive sale caught the attention even with those unfamiliar with Instagram, but there’s still time to make an impact before the platform gets saturated with companies. Instagram is a fairly simple application: you take photos with your mobile device, select a filter from a variety of options, tag your location (if you want) and share those photos to Facebook, Twitter and Instagram’s platform. Instagram’s filters can make any photo look great, which is why it has been dubbed “the autotune of photography.”

Step 1: Take interesting photos

Step 2: Follow others

Instagram allows you to find friends based on your contact list, Facebook friends and Twitter followers; you also can search for specific people. The easiest way to get started is to follow your Twitter and Facebook friends that already have connected with your hotel’s Twitter feed and Facebook profiles. After this, simply double-tap pictures to like them. Your followers will notice you liking their content, and if you’ve followed the first step, you should already have interesting content for them to engage with.

Step 3: Integrate Instagram with your web presence

Although it’s still in its infancy, Instagram does allow third-party applications. One of the best for brands is Followgram.me. This app provides web-facing Instagram photos that people can view and share. Here’s Ikea Italy’s stream, for instance. Widgets can be placed on your websites for people to see new images of the hotel, your grounds and the surrounding city.

REPORT FROM THE U.S.—In a landmark ruling that has its roots in the hotel industry, the U.S. Supreme Court has found that secured creditors cannot be denied the right to credit bid for their own assets.

The ruling stems from Radlax Gateway Hotel LLC, et al. v. Amalgamated Bank. At issue was whether lenders should have the right to purchase their own collateral at bankruptcy auction by using debt, a process known as credit bidding.

The dispute surrounds the proposed auctions of a pair of hotels owned by entities of River Road Hotel Partners LLC—the InterContinental Chicago O’Hare and the Radisson Hotel at Los Angeles Airport—which declared bankruptcy in August 2009. Court filings show River Road had secured stalking horse bids totaling $89.5 million for the properties.

But before the transactions closed, Amalgamated, the principal secured lender for the hotels that court documents show is owed in excess of $161 million, objected to the bid procedures on 8 July 2010, stating the bank was not given the opportunity to credit bid, a tactic that courts were split on allowing.

Associate Justice Antonin Scalia, delivering the opinion of the court, said River Road attempted to “confirm a 'cramdown' bankruptcy plan over the bank’s objection.”

“The debtors’ reading of (U.S. bankruptcy law) is hyperliteral and contrary to common sense,” Scalia wrote. The decision was nearly unanimous, with only Associate Justice Anthony Kennedy not taking part in the decision.

View the Supreme Court’s opinion.

In an emailed statement, officials at Amalgamated said the decision strengthens the bank’s ability to be repaid and allows the company to proceed with its plans for the Radisson Hotel at Los Angeles Airport, for which it provided a $142-million loan to be used for a renovation of the property and the construction of a parking deck. That loan will eventually be worked out, according to the statement.

David Neff, an attorney at Perkins Coie who argued the case before the Court on behalf of River Road, is “disappointed” in the decision.

“We think it limits the opportunity Chapter 11 debtors have to confirm financing over the objections of secured creditors,” he said. “Obviously, that would include hotel owners on the bankruptcy level.”

In June 2011, the U.S. Seventh District Court of Appeals ruled that, absent consent, secured creditors cannot be denied the right to credit bid when a reorganization plan proposes a sale of encumbered assets free and clear of liens and security interests. That decision went against a ruling from the Third and Fifth Circuit Courts of Appeals.