New Realities: ADR, BRIC and Looking for a Tailwind at ALIS 2011 - By Julie Keyser-Squires, APR

“Inbound travel to the U.S. is an export. It creates jobs.” 
-Arne Sorenson, President & COO, Marriott International at ALIS
 
 
Over 2,200 attendees gathered in San Diego this month to learn from hotel industry leaders the new realities of a post 2008-2009 recession landscape. Warren Jestin, SVP and Chief Economist, Scotiabank Group, summed it up on opening day at the 10^th annual Americas Lodging Investment Summit (ALIS):  “If you focus on the familiar and avoid the unfamiliar, you may follow a losing strategy over the next decade.”  It is time to identify and promote to new markets of opportunity.  Other key themes at ALIS were ADR (Average Daily Rate); the rise of the BRIC countries (Brazil, Russia, India, China); and signs of tailwinds that could encourage a return to optimism for the hotel industry.
 
When Will ADR Return?  As Jobs Increase.
The U.S. hotel industry saw the strongest room demand rebound in its history in October 2010, +7.3% up from -6.9% the previous year. Yet ADR (Average Daily Rate) is still below $100 and occupancy is still below 60%, according to Smith Travel Research. U.S. leisure and business travel is back (see Top 10 US Markets below), but pricing lags.  This makes revenue management discipline in 2011 crucial for operators in all segments. “2011 is a return to normalcy; 2012 will see real increases in pricing power,“ predicted Mark Woodworth, president, Colliers PKF Hospitality Research.   
 
 
One-minute video on pricing.
Rick Swig, president, RSBA & Associates, moderated the panel on
“Restoring Hotel Profitability and the Room Rate Challenge.”
 
 
BRIC Gets Big and Starts Traveling = More U.S. Jobs
Big internal growth – from 5 to 9% - and income growth has caught up with big population size in the BRIC countries and Asia, which are exporting a newly affluent, traveling middle class, said Warren Jestin.  How big is BRIC’s impact? “There will be 100M Chinese travelers in the next 5 years,” forecasted Arne Sorenson, president & COO, Marriott International.  Related, several attendees noted ADR will likely go up as jobs are created. “Make this case,” said Sorenson.  “Inbound travel to the U.S. is an export. It creates jobs. “ 
 
With the passage last year of the Travel Promotion Act, which created a non-profit Corporation to promote the United States as a travel destination, the U.S. will spend $100M in advertising.  “If we can double the number of international arrivals, we could create one million new jobs,” predicted Richard Friedman, president & CEO, Carpenter & Company and member, President’s Export Council. Steve Joyce agrees.  “International visitors spend $4,500 to $5,000 per person as they hit the U.S.  This is about jobs, jobs, jobs,” said Joyce, CEO of Choice Hotels International and Chair of the AH&LA Multicultural & Diversity Council.
 
 
 
Two-minute video on BRIC, Travel Promotion Act and jobs.
David Scowsill, President & CEO of the World Travel & Tourism Council 
 
Domestically, a step toward preparing an infrastructure to service U.S. multicultural travelers is to “develop a multicultural lens within your organization,” said Steve Joyce.  “GMs should view this as a P&L imperative.”  Click here to read AH&LA-sponsored “The Power and Opportunity of the Multicultural Markets” report announced at ALIS. This study quantifies the travel and spending power of the top five multicultural groups in the U.S. – Females, African-Americans, Asian-Americans, Hispanics, and Lesbian/Gay/Bisexual/Transgender (LGBT).  Ethnic communities in the U.S. are the 6^th largest GDP in the world. The report findings are the first step in a process that will link into classes for hotel general managers. The goal is to show GMs the business case for creating an environment in which multicultural guests feel comfortable. 
 

 
Two-minute video on the power and opportunity of multicultural markets.
Steve Joyce, CEO of Choice Hotels International and
Chair of the AH&LA Multicultural & Diversity Council, unveils “The Power and Opportunity of the Multicultural Markets” report from AH&LA.  Click here to view the report.  
 
Tailwinds
Tailwinds that encourage a return to optimism in the hotel industry are particularly strong in the top 10 U.S. markets that lead the recovery; anticipated job recovery; and the return of the Luxury market.
 
Top 10 U.S. Markets: Where to buy or build a hotel?
Projected RevPAR growth from 2010 to 2014 for the 50 markets tracked by Colliers PKF Hospitality Research range from Jacksonville, FL with a high of 9.7% RevPAR, to Indianapolis, with a low of 4.1% RevPAR. Here are the top 10 U.S. markets to buy or build a hotel in 2011, courtesy of Mark Woodworth, president, Colliers PKF Hospitality Research, who moderated the U.S. Hot Spots panel.   Want more details?  Please click here.
 

1. Baltimore. 
2. Los Angeles
3. Philadelphia
4. New York - best performing market in the country
5. Newark
6. Jacksonville
7. Houston
8. Oakland
9. Portland
10. Seattle

 
Outside these 10 cities, other metro areas favored by the panelists were Boston, New York, DC, San Francisco, Silicon Valley, Chicago, Nashville, San Diego – downtown and North Coastal; Orange County Airport area, and Anaheim.  Please click here for more details on specific markets.
 
 
When will all 50 cities PKF tracks get back to pre-recession occupancy, rates and RevPAR?  According to Woodworth, look for that to happen in 2013 – 2014,
 
 
Luxury is back.
ALIS’ panel on the Luxury segment offered the following headline predictions for 2011.
“We are back.  If 2011 sustains itself, we are out of the woods.”
– Homi Vazifdar, Managing Director, Canyon Group
“It’s back, but it’s different.”
–John Vanderslice, Global Head – Luxury & Lifestyle Brands, Hilton Worldwide
 
“It’s back, and how do we differentiate?”
–      Gordon Gurnik, president, North America and EMEAI, RCI
–       
“Luxury is back and driving rates in 2011. Government instability is a challenge around the world. This will impact luxury in a big way.”                – Robert Gaymer-Jones, COO,  Soluxury HMC – Sofitel WW
 
“What was all the fuss about?” – Alan Fuerstman, Founder and CEO, Montage Hotels & Resorts
 
 
Want more on pricing and profitability, and the future? Read the Quotables, below.
 
Pricing & Profitability.
“When RevPAR is driven by rate growth, the value is 1.5% higher than when it is driven by occupancy.”
Mark Woodworth, president, Colliers PKF Hospitality Research
 
“The shocking figure is: in 2010 profitability was 50%  of what it was in 2000.”  -Rick Swig, president, RSBA & Associates.
 
“Has reliance on Smith Travel Research numbers gone too far? We’ve stopped paying attention to what we are forecasting and started looking at our STR stats.  We’ve taken benchmarks and let them become our intelligence.” -Rick Swig
 
“There is never a sale at Apple or Tiffany’s.” -Rick Swig
 
“Negotiate group business more aggressively.”
 - Panelist on “Restoring Hotel Profitability and the Room Rate Challenge.”
 
“When we sell a room through OTAs, we are taking a 30% cut.  This must be addressed before we can raise rates.”                                                                     – David Kong, president & CEO, Best Western International
 
“Our business is not about distribution.  Our business is about hospitality.” – David Kong
 
“Be #1 in ADR in your market and drop occupancy to be #2 or 3 in your market.”
– Richard Moreau, EVP, Asset Management, Strategic Hotels& Resorts

“We want revenue managers to report to the GM, not to the director of sales.”  – Richard Moreau
 
How do you create a great revenue manager?  “Provide an engaging environment which gives them training and development. Hire on capability versus expertise.”  - Chris Silcock, Global Head, Revenue Management, Hilton Worldwide
 
How do you recruit college students to become revenue managers?  “We changed the title to ‘Revenue Management Consultant’ and increased the intake.” - Chris Silcock
 
“Group business is still painful. It will take us a while.  Groups are smaller and they are booking later.” – Chris Silcock
 
“If you put a great GM in the hotel, things seem to work out.”  -Chris Silcock
 
The Future Picture
Comments by ALIS keynoter Joel Kotkin, Author & Futurist, “THE NEXT HUNDRED MILLION:  America in 2050.”
“The future of hospitality in North America is much brighter than we think.”  Reasons why:

1. Demographics – the US has the healthiest long-term demographics compared to competitors.
2. Resources – new centers of vitality, like Texas.  US population will grow to 400 to 450M by 2050 due to a higher birth rate and immigration.
3. US population aging slower than other countries.  We have a relatively young population.
4. Labor Force Growth - U.S. ages 15 to 64 will grow 45% by year 2050; China will decrease -10%.
5. Room to Grow – US has more total arable land; 4x per capita water as Asia and Europe; is the biggest agricultural producer; the largest natural gas producer in the world; North American is 2^nd largest producer of oil.

 
“America will be radically different,” said Kotkin. “Think about who your customer is becoming.”
 
 
Julie Keyser-Squires, APR, is CEO of Softscribe Inc., a digital marketing + PR firm that applies SEO and social media to help clients in the hospitality, travel and related markets increase relationships and sales. Give her a shout on twitter @Juliesquires or comment on the company’s blog http://www.softscribeinc.com.

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