Los Angeles – The theme for this month’s Americas Lodging Investment Summit here is “Going Up?”, and while the idea reflects the positive performance metrics the U.S. lodging industry delivered in 2013, the question mark suggests that the industry’s increasingly higher occupancy, average daily rate and revenue per available room numbers posted in the past few years aren’t necessarily a sure-fire thing going forward.
ALIS last year attracted more than 2,400 owners, developers, hotel company executives and other attendees to the L.A. Live complex, site of this year’s conference as well.
➔ “Corporate profits are showing modest growth, the stock market is up considerably and industry metrics are moving in the right direction.”
David Kong, president and CEO, Best Western International
When asked to describe their sense of the industry’s prospects going into 2014, a sampling of scheduled speakers at this year’s ALIS offered responses ranging from cautious to unqualified optimism.
David Kong, president and CEO of Best Western International, cited “a lot of good news,” including the state of the national economy, with “many positive indicators, really for the first time since the downturn. Corporate profits are showing modest growth, the stock market is up considerably and industry metrics are moving in the right direction,” he said.
Russell Urban, Destination Hotels & Resorts’ EVP for business development and acquisitions, used a familiar baseball metaphor for where the industry stands right now in relation to the traditional up-and-down cycle. “We’re in the fifth inning of a very long game. We’ve seen some sustained growth over the past couple of years and are likely to see some great things over the next few years. We don’t think we’re nearing the peak,” he said.
Dolce Hotels & Resorts’ CFO Debra Bates concurred. “We think the industry recovery is going to continue with the hotel business in line with what we expect for the national economy. That’s all seemingly good news,” she said.
Meanwhile, AH&LA president and CEO Katherine Lugar takes hope from a recent show of at least modest bipartisanship in Washington that would allow Congress to move forward in 2014 on resolving issues critical to the industry. “There are four issues on the policy front we’re actively engaged in,” she said, naming comprehensive immigration reform, health care compliance, the National Labor Relations Board and travel and tourism legislation.
Yet, when pressed, these industry figures also cite underlying concerns about the state of the business. These concerns co-exist alongside their general optimism and, if unaddressed, could shorten, if not end, the industry’s current up-cycle. Kong calls them “contingencies,” which, he said, “is why we have a contingency plan as well as budget and business plans.”
Kong cited two, the first being supply growth. “While for the industry as a whole supply growth may be under control, the midmarket—where we operate—is starting to see increased levels of new supply that may well outstrip demand growth,” he said.
Second is the lag in room rate growth. Pricing power has not returned. “Despite the economic recovery, owners and managers have only raised rates modestly. They seem to lack the confidence to raise rates to the level they should be. [Also],, consumers continue to look for deals. Internet booking and the increasing power of the OTAs have compounded the problem,” Kong said.
Bates expressed concern that transient business has rebounded since the downturn, but the same can’t be said for group. “We saw improvement in 2013 and would like that momentum to continue this year. Similarly, the booking window on the group side has become very short, which poses a challenge in long-term planning, but we don’t anticipate that changing,” she said.
➔ “There are four issues on the policy front we’re actively engaged in. Comprehensive immigration reform, health care compliance, the National Labor Relations Board and travel and tourism legislation.”
Katherine Lugar, President and CEO, AH&LA
Immigration reform and initiatives to raise the minimum wage are concerns top-of-mind for Urban. Underlying both is the fact that the lodging industry is a major employer of entry-level and seasonal workers. “The ongoing immigration issue affects the availability of these workers, while the minimum wage question affects the cost of labor. Raising the minimum wage significantly will impact our cost structure and profitability as well as what we have to charge the consumer,” he said.
Should Congress remain polarized, Lugar is concerned that comprehensive immigration reform legislation will remain stalled. She described the bill passed by the Senate last spring as imperfect, but noted that the AH&LA will focus its efforts this year on the House of Representatives, which hasn’t been able to agree on the scope of a bill of its own.
On the health care reform front, the AH&LA is focusing on making key legislative changes to the Affordable Care Act. “One major area of focus will be redefining who is considered a full-time employee under the Act,” she said.
“In addition, we will remain vigilant about watching the activist National Labor Relations Board and continue to promote policies that advance travel and tourism to the U.S., particularly the proposed Jobs Originating through Launching Travel [JOLT] Act.” Lugar noted that the bill has bipartisan support with 100 co-sponsors in the House, representing both parties.
➔ “Raising the minimum wage significantly will impact our cost structure and profitability as well as what we have to charge the consumer.”
Russell Urban, Destination Hotels & Resorts’ EVP for business development
Going into 2014, Kong, Urban and Bates agree that two trends, already evident in 2013, will exert even greater influence this year: the impact of social media and the importance of revenue management. “I can’t imagine anyone not paying attention to social media in 2014. It’s the future. We’ve invested in the technology to make it easy for our general managers to respond everyday to the comments their hotels receive, whether positive or negative,” Kong said.
Noted Urban: “The fastest growing area of hotel operations right now is revenue management, which has a lot to do with managing all the distribution channels.”
The influx of Millennial travelers is influencing both trends, explained Bates. “They like a high degree of connectivity. They’re really driven by having the ability to connect three electronic devices at the same time,” she said.