Travel Slump Has an Upside: Deals on Hotels (United States)
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Travel Slump Has an Upside: Deals on Hotels (United States)
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Category: North America & West Indies / Carribean islands - United States - Industry economy
- Trends / Expert's advice
This is a press release selected by our editorial committee and published online for free on 2008-08-28
Cash-strapped travelers may finally get a break on rising hotel prices this fall -- courtesy of airline cutbacks and high gasoline prices.
Airlines' service cuts and rising fuel costs have damped travel demand to several popular resort destinations. That has spurred some hotels to offer plentiful deals and to temper rate increases to woo reluctant vacationers -- an about-face from recent years, when soaring demand for hotel rooms led to record room-rate increases.
U.S. hotel room rates overall are still predicted to rise slightly this year. That is partly because of continued strong demand in urban markets and the weak U.S. dollar, which has been attracting more travelers from overseas. Average room rates are expected to rise about 2% this year, according to PKF Hospitality, a hospitality industry researcher.
But those numbers obscure what's going on at the nation's resorts. Overall, resort properties across the U.S. last month saw a half-percentage-point decrease in daily rates from a year earlier, the most recent data available, according to Smith Travel Research. It was the first decline since 2003. Occupancy rates have dropped, too. In Phoenix, for example, hotels are running at about 64% occupancy so far this year, compared with 71% a year earlier. In Virginia Beach, Va., hotel occupancy so far this year was down about 8% from a year earlier.
Bargain hunters traveling to popular vacation spots in Florida, Arizona or Hawaii will likely have the best luck finding deals over the next few months, as leisure-travel destinations are expected to see the biggest flight-capacity cuts -- and resulting airfare jumps. Some hotels are slashing rates and throwing in extras (like a fourth night, or meals, free). Other are rolling back their usual annual rate increases for the first time in years.
In Palm Springs, Calif., hotel occupancy is down more than 6% so far this year. In April, the resort town lost its direct flights from Houston on Continental Airlines Inc. And with rising gas prices, "our drive market has been off this summer, no question about it," says Jeff Beckelman, the chief executive of the area's convention and visitors bureau. As a result, last week, the tourism organization began touting promotions with discounted hotel rates as low as $89 a night, and resort credits for $100 to spend on spa treatments and golf rounds on a new Web site, pshotdeals.com. "We've been very aggressive," Mr. Beckelman says.
Online travel agencies say they've seen an influx of deals. August hotel-room prices booked on Hotwire.com are down about 5% from a year ago. "You're definitely seeing a lot of discounting going on," says Noreen Henry, vice president of hotels at Travelocity. On Tuesday, the online travel agency will launch a promotion for fall discounts called "Race to Savings," good through Jan. 15. Deals include 47% off regular fall rates at the Valentin Imperial Riviera Maya in Cancún, Mexico, and 40% off fall rates at the Regal Sun Resort at Disney World in Orlando, Fla. (Airfares booked on the site to those destinations are up on average 10% and 5%, respectively, compared with last year.)
Deals also reflect the impact of a building tear over the past couple of years. Now, as many new hotels open for business, cities and resort towns are flooded with new supply just as travel demand slows.
In places like San Diego, an influx of new hotels is partly to blame for falling room rates, as are rising gas prices and weak housing markets in nearby feeder cities like Phoenix and Las Vegas. At the Hilton La Jolla Torrey Pines in La Jolla, a sprawling resort next to the golf course that hosted this year's U.S. Open, occupancy held steady over the peak summer season this year, but more travelers than usual booked rooms at the last minute, with about 48 hours' notice instead of two or three weeks, says Patrick Duffy, the general manager. The hotel has dropped its room rates about 5% from last year's average rate of about $250, he says.
Over the next month or two, the major airlines are expected to announce the majority of flight cuts -- leaving some hotels and vacation destinations bracing for the bad news. In Orlando, where flight capacity is expected to drop by as much as 12%, the local visitors bureau has formed a task force called Air Team Orlando that will meet with the airlines, partly to lobby against declines.
Already, demand for flights seems to be easing. The Air Transport Association of America forecasts that 16 million passengers will travel on U.S. airlines this Labor Day weekend, down about 6% from last year -- the first drop since 2002.
Resort properties are typically the first to drop their rates in response to market forces because vacationers are most vulnerable to changes in the economy. "That position is exacerbated this time around because of the dramatic increase in cost of getting from point A to point B," says Mark Woodworth, president of PKF Hospitality.
Even business hotels are feeling some pressure. Hotels that cater to business travelers typically negotiate their corporate rates and discounts a year or so in advance with big companies who buy hotel rooms in bulk. This year, in an unusual move, many big companies are trying to renegotiate their rates midyear to get a discount. According to the National Business Travel Association, about 30% of corporations reported doing so, which the association says is a significant increase over previous years.
Some resort companies are targeting airfare increases directly. Sandals, a chain of 12 all-inclusive resorts for couples in the Caribbean, just announced a "fly-free" offer with an airfare credit of up to $550 per person for trips booked by Oct. 23. So far this year, Sandals has seen record occupancy, says Kevin Froemming, president of Unique Vacations, the company's sales and marketing arm. But because Sandals caters largely to honeymooners, most bookings are locked in many months in advance, he says, and starting around June and July, he says he saw "a definite shift in people holding on to their money more," with advanced bookings falling about 10% from last year. Elite Island Resorts, which also has properties across the Caribbean, announced this week a promotion that guarantees round-trip airfare of $299 on AMR Corp.'s American Airlines flights to Elite's properties in Antigua.
Hawaii has seen about a 15% drop in flight capacity from the mainland with the shuttering of Aloha and ATA airlines earlier this year. Already, Outrigger Hotels & Resorts there have seen bookings off by about 10% for the fall, says Barry Wallace, the company's executive vice president. Now, 30% to 40% of the company's hotel rooms are being offered in discounted rate categories, compared with 15% to 20% of them last year. "We think the writing's already on the wall for fall" business, Mr. Wallace says. "We're looking at winter and spring."
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