Given the current state of the economy, and the growing consensus that a recession is near, if not here, what is the outlook for the hotel industry?

Published: 15 Jan 2009

Given the current state of the economy, and the growing consensus that a recession is near, if not here, what is the outlook for the hotel industry?

The slowdown of the economy didn’t happen suddenly, it has been happening since last year so the questions are:
- Were we following up closely on the happenings in our areas?
- What was our budget and our forecast for 2008?
- Did we have an action plan for the expected slowdown in the economy?

In Europe business went down by more than 40 %, especially during the summer.
In Saudi Arabia the demand has increased, although some of the big companies started to reduce their manpower and expenses since the beginning of the year, but still some project agreements are arising and will continue into the next year.
I do expect that within few months the demand will be back to 85% of normal, keeping in mind the decrease of fuel prices and this potential influence on flight pricing.

In general, in most of the world there will be a slowdown and in the rest there will be more pick up and demand, especially in the resort areas.
While all hotels are subject to the same broad economic influences, each market and property is most directly affected by the supply and demand factors in their own back yards. Markets facing significant supply increases will likely experience a greater degree of stress than previously anticipated. Conversely, those with little to no supply increases underway can expect to weather the storm with less difficulty.

For individual hotels, the slower periods of the economic cycle present opportunities as well as threats. The reality is that demand doesn’t just grow or decline, it also moves – from market to market, and from hotel to hotel. Meetings once held in a more distant, more expensive market may relocate to a more affordable local alternative. Business travelers whose expense accounts once ran to a full-service hotel may seek out less expensive – and often equally suitable – alternatives among the select - or limited - service lodging sector and so on.

In these circumstances, one property’s decrease can be another’s opportunity for growth.

With the revenue management tools available at the property level, property managers now have a greater ability to effectively manage pricing so as to achieve an optimal balance between occupancy and average rate.

So how can hotels revenue managers be ready for the expected stagnation in the economy? Reconsider, Reevaluate and make action plans :
- During the daily activity, Monitor Changes to your Market Segment.
- Manipulate the Rate Structure – but don't lower it.
- Evaluate the hotel Channel Distribution
- Re-evaluate Your Competition set
- Create Dynamic Packages as much as you could for rooms and F&B.
- Monitor the Online Presence and strengthen
- Refer back to your marketing plan and see why people need to travel to your area

Using the principles of revenue management could carry you through the current stagnant economy. Don't give in to the desperation of dropping your rates and crossing your fingers; generating business is hard work. As the old saying goes, "you have to kiss a lot of frogs to find a prince".

Ahmed Mahmoud
Director of Revenue management, Starwood
Saudi Arabia
Owner of www.revenueyourhotel.com