Travel Industry

Is travel up or down?

So which is it: the travel industry is beginning to recover from the recession, or prices will continue to circle the bowl for the next 12 months?

Attendees at the U.S. Tour Operators Association annual meeting in Banff, Canada, this week are saying the future looks brighter. In fact, the past wasn’t so awful, as we haven’t seen a single USTOA tour operator go our of business in 2009, the association’s president announced. The secret, of course, was slashing prices to the bone in a survival move, and then having the business resolution to cancel unfilled tours. Seventy-five percent of survey respondents of a USTOA member survey in November predicted prices will be lower next year than in 2009 by an average of 5 percent, according to Travel Weekly.

And yet, 20 percent of member operators surveyed said that business had already turned a corner. Nearly 70% predicted a turnaround in 2010; of those, more than 30% saw business picking up in the first quarter, nearly 25% predicted a second-quarter pickup and more than 10% said the turnaround would not occur until the third quarter. Only 15 percent don’t see a recovery in 2010.

Meanwhile, Travelocity is putting out press releases showing its most recent data for hotel rooms booked over a holiday (December 20, 2009 to January 3, 2010) shows average daily rates have been falling as the popular vacation period nears. A week-by-week analysis shows that over a 14 week period ending November 28, overall ADR has dropped from $181 per night to $150 per night. The good news for the lodging industry: international hotel rates are rising for the holidays.

Over at rival Hotwire, the 2010 predictions say that hotel prices will continue to drop, especially in larger cities like Las VEgas, Miami a, Los Angeles and San Francisco, where rooms are already 55 percent off. Prices will stablize f0r the airlines, thanks to capacity cuts, but they’re not rising any time soon. Car rental prices, however, will be through the roof.

For the first time since CLIA started publishing stats, the number of ships setting sail from US ports fell year on year. In 2004, US embarkations accounted for 77% of all cruises. In 2008, that had fallen to 69%, says Travel Weekly.

Rooms for sale?

PhocusWright didn’t predict good things for the travel agent sector in 2008, even before the recession woes hit. Still, John Pittman of ASTA believes 2010 will be a year of recovery, with many agencies saying they expect to rebound by spring or summer. (Corporate travel, other members say, will lag until 2011.) How did Travel Agent’s editor sum up his state-of-the-industry interview with ASTA officials this week? “Despite the loss of 1,400 agency locations and real challenges to be faced in 2010, travel agents who provide value to suppliers by creating demand for travel and provide valued services to consumers, the future looks good.”

Well, that’s not especially definitive — go-getters and hard-core salespeople will always be able to make a success of the impossible. So the question isn’t whether individuals can make it but whether the service itself has a fighting chance.

Photography: Julie Sturgeon

In June 2009, New York based Oyster Hotel Reviews launch was announced, backed with $6.4 million in Series A funding from Bain Capital Ventures. Oyster’s plan: to provide professional hotel reviews for consumers, written by mainstream travel journalists after in-person visits to the property.

Oyster Hotel Reviews

They promptly hired 20 reporters and at least three editors, who were sent out to stay in and review hotels with all-expenses paid trips.

In September, Bain agreed to an extended $4 million Series A round, bringing the total to $10.4 million.

But $10 million doesn’t get you what it used to. As the year draws to a close, Oyster has dramatically changed its trajectory, with 17 staffers being laid off, including over half the reporters. Elie Seidman, Oyster CEO and co-founder, says the layoffs are part of a plan to focus on “winning in the markets we’ve already covered” and slow down the rate of new market coverage.

Fact remains that slow growth wasn’t part of the announced plans in September. This chapter in the Oyster story is one we have seen before: failure of travel editorial based exclusively on a direct-to-consumer model. Examples of prior failed editorial efforts: Gorp (now owned by Orbitz) and most recently in the rise and fall of Professional Travel Guide (formerly – owned by travel content giant Northstar Travel Media).  The issue isn’t whether a travel editorial site can create a compelling experience. They can. It’s that a direct-to-consumer (only) business model can’t support the editorial costs.

And perhaps direct-to-consumer (only) can’t even support the operating costs of a site when they get the content free. Despite getting “free” content from Northstar. Professional Travel Guide was unsuccessful.

Let’s clearly separate editorial-for-consumers-only businesses from other successful travel editorial businesses that are doing well.  NorthStar’s core business model is solid. They, and others like Frommers and Fodors have built lasting brands and profitable business models based on licensing and book sales. Others like 10Best and wcities are profitable solely licensing their content.  Supplier licensing drives the business model of other editorial companies like VFM Leonardo and Tripfilms.

As Oyster starts its search for additional funding and embarks on the path to profitability, it will rekindle the debate over user generated content vs. professional/editorial content (see Dennis Schaal, Troy Thompson, Pauline Frommer, Robert Flynn).

Oyster Hotel Reviews was differentiating itself from TripAdvisor as a source of authentic hotel reviews.

Oyster vs Tripadvisor

Professional Travel Guide’s failure and Oyster’s slowdown will likely tilt the favor in favor of the UGC proponents {disclosure: as a semantic search engine that searches over 5,000 sites including editorial sites like Frommers and Fodors as well as consumer UGC sites like Yahoo! Travel, TripAdvisor, we are agnostic in this debate – other then knowing different consumers want both types of content at different times but generally most want the ‘gestalt’ necessary to make a confident decision}.

The blogosphere hasn’t been kind to Oyster, but Oyster’s reviews are of very high quality and we hope Oyster is able to raise additional funding and create a viable business.

What do you think? Can standalone consumer-only travel editorial sites create a viable business? Or does new travel largely come from consumers in the future?

Hosting the Olympics isn’t exactly all that its made out to be, in terms of visitors and tourism. Turns out that Vancouver and Whistler are suffering from something known as the ‘Olympic Avoidance Effect.’

The Westin Resort & Spa in Whistler

Hotel occupancy rates have tanked in Whistler and Vancouver in advance of the games, with year on year rates down by as much as 9.5%. The Westin Resort & Spa in Whistler is struggling to overcome a measly 10% occupancy rate, as of last week.

The drop in visitors is mostly attributed to American travelers hesitant to cross the border for fear of getting caught up in the bedlam and construction of the preparations for the Vancouver 2010 Winter Olympics.

With a woeful occupancy rate months ahead of the games, and the virtual certainity of an even bigger drop after the games, the only way the hotels in Vancouver and Whistler could have made up for the loss would have been high prices and occupancy during the Olympics. The occupancy they have, the prices not so much.

VANOC – the Olympic organizing committee, has a pact in place with most hotels under which they have all agreed to limit rates for Olympic visitors. To make matters worse, some of the hotels in Vancouver, who didn’t sign on to the pact, have gone rogue and are now fleecing travelers for as much as possible.

One of these hotels is The Robsonstrasse in downtown Vancouver. This hotel, which usually calls itself a discount hotel, is charging as much as $1200 for a suite which normally goes for $280, according to an article in the Globe & Mail. Media reports about how hard it is to get hotel rooms and the steep prices mentioned ($450 to $700) have turned off non-Olympic visitors well in advance of the games.

To clarify – these rates are only for the duration of the games (Feb 12-28, 2010), and mostly because all the cheap rooms have already been booked for these dates. But the stories add to the perception of chaos and price gouging, which non-Olympic travelers don’t want to get mixed up in.

End game – Other the high occupancy for the duration, the Olympic Games have created more problems than revenue for area hotels.

Westin Photo courtesy Starwood Hotels & Resorts

Related posts:-
Olympic Spat – Quality Inn Vancouver Franchise Fight
The Olympic Effect – Chicago Lost, but Chicago Tourism Strikes Gold

A seemingly harmless franchise fight between the owners of the Quality Inn Vancouver Hotel and Quality Inn (the brand) has spiralled out of control into a giant consumer mess for travelers who booked rooms for the Vancouver 2010 Olympics and got left high and dry.

Vancouver 2010 Olympics

On October 16, the 100 room airport hotel – formerly known as the Blue Boy Motor Hotel – lost the right to be a part of the Quality Inn brand. 

Consumers who made reservations at the hotel months ago through Choice Hotels International – the parent company which owns the Quality Inn brand – were informed that their reservations were no longer valid.

A consumer who booked a room for $79 now faces the prospect of booking similar rooms at shockingly high prices. The hotel owner is offering to rebook the same room for $500. Choice is offering to rebook at one of its other Vancouver hotels for $395 a night.

In short, anyone who booked a room at the hotel through Choice now has to fork over an additional $300 over, if they want a room for the Olympics.

A Choice Hotels spokesman told the Vancouver Sun that “Choice Hotels cannot force a hotel that no longer holds a franchise to honour the room rates guaranteed by its booking agents.”

That may be true, but the question now is, can these consumers force Choice to honor the room rates? There’s already talk of a class-action lawsuit. And it doesn’t make Vancouver look so good either. If this escalates into a full-fledged media uproar, then Choice will have to give in quickly to contain the damage.

Photo by Andy Miah

Massachusetts Governor Deval Patrick has decided to ask State workers to boycott the Hyatt unless Hyatt rehires the fired housekeepers at their three Boston hotels – the Hyatt Regency Boston, Hyatt Regency Cambridge, and Hyatt Harborside Hotel.

In a letter to Hyatt CEO Mark Hoplamazian, Gov. Patrick said that he was disappointed by Hyatt’s unwillingness to reconsider their firing of  housekeepers from their three hotels in Boston and replacing them with workers from an outsourcing firm, and that he understood how difficult it is to manage under the current economic situation, but unless Hyatt reconsiders, he will direct all state workers to stay away from Hyatt.

Here’s an excerpt from the letter sent by Gov. Patrick to Hyatt CEO Mark Hoplamazian on Sept 22, 2009:

“Again, I ask Hyatt to reconsider the decision to replace these workers. Barring that, I will direct all state employees not to use Hyatt when traveling or for other purposes for the foreseeable future. This is not how I like to operate. But the treatment of these workers apprears to be so substandard that it leaves me no choice.”

Background information here. I think its safe to say that the fired employees will have their jobs back at most by next week, but probably this week itself.

Update 1: Sept 23, 2009 – Statement from Phil Stamm, General Manager of Hyatt Regency Boston, in response to Gov. Patrick’s proposed Hyatt boycott – “We do not understand why the Governor is putting more Massachusetts jobs at risk instead of working with us to find jobs for employees affected by the realities of these unprecedented economic challenges.”

I don’t think Hyatt realizes just how deep this hole is. This is a no-win situation, and digging in and sticking to their ground is just going to get them in even more trouble. If the official and/or labor boycott spreads beyond Massachusetts, no amount of backtracking is going to help them afterwards.

Officials in Minnesota are undecided whether they like the new word in our lexicon these days: staycation, today’s art of turning your backyard into yesterday’s vacation. It means festivals and campgrounds made out like bandits — hotels and airlines are left sucking wind.

Up in Minnesota, where tourism is an $11 billion industry and employs 248,000 people, the ends of this spectrum are really showing. In an end-of-the-summer survey by Explore Minnesota Tourism, the state’s tourism promotion office, half of more than 300 reporting accommodations noted that both occupancy and revenue were down this summer. On the other hand, one out of four reported that business was up.

“Minnesota still hosted plenty of travelers this summer, but the way they are traveling has really changed,” says John Edman, director of Explore Minnesota Tourism. That’s an understatement.

Businesses that did well in our Land of 10,000 Lakes state offered affordable rates, special deals, or packages that included activities, free breakfasts or other extras. Campgrounds did especially well, with close to half reporting an increase in revenues. Fishing, hiking, festivals, amateur sporting events and other low-cost activities were a hit,  and state parks saw an increase in visitors.

Many resorts reported that bookings for their traditional housekeeping cabins, where guests cook their own meals, remained up there this summer, and that these accommodations draw loyal, return customers who often book for the next year during their stay. The bad news: Large resorts saw a downturn in bookings by corporate groups and conferences, and occupancy and revenue were down at the majority of hotels, especially in the Twin Cities area.

Boundary Waters Canoe Area and Wilderness

Nevertheless, a little more than half — 52 percent to be exact –  of the accommodation businesses that responded to the recent Explore Minnesota Tourism survey reported “stable, but positive” financial health, Another 14 percent indicated that their financial health was “growing.” Overall, businesses expect the summer’s travel trends to continue into the fall.

Which explains why the state teamed up with neighbor Wisconsin to run radio ads inviting folks travel to both the Minnesota and Wisconsin sides of the St. Croix River and the Mississippi River to view fall colors. More than 70 stations in Minnesota will run the radio spot through September 13, and Wisconsin will return the favor next spring when a different palette of colors takes over.

The real question is do they anticipate staycations will carry over into summer 2010? One season of down sales makes headlines. Two seasons mean a sea change in how an industry does business altogether because doing well in an activity that costs less can still mean fewer dollars on the bottom line in the bigger picture.

Photography: Savannah (Flicker.com)

This post is part II of a series we’re doing on detecting travel trends and holiday weekend hotel booking patterns, based on an analysis of data collected by UpTake. In Part I, we saw the trends and patterns in the San Francisco market. In this post, we’ll be looking at the New York area data, which shows significant differences as compared to San Francisco.

W New York Union Square

The first data sample was taken on June 19, and the results of successive rate checks were noted down all the way through the 4th of July weekend and onwards to-date, leading up to Labor Day. The hotels included are all 3 or 4 star hotels in New York City, and spots ideal for drives out of New York City, like the Hudson Valley and Cape May, NJ.

Rates for the 4th of July weekend at hotels in New York City start creeping up surprisingly late. As of June 19, the 4th of July weekend rates at the W New York Union Square and The Benjamin Hotel were actually less than the weekend rates offered for bookings 4 weeks on. At the Sofitel New York, both the weekend rates and the 4th of July rates were exactly the same.

The same thing happened again, in the next sample taken on June 26. What does this mean? To make sense out of this, you have to look at the data for the rest of the New York region. In samples taken for both Cape May, NJ and hotels in the Hudson Valley, most units were completely sold out - as of June 19 – for 4th of July stays, which made the June 26 sample redundant.

In places perfect for getaways from the City – where bookings were still available as of June 19, such as the The Bell House in Hillsdale, rates were at a premium  -$175 for 4th of July bookings, as compared to $150 for weekend bookings 4 weeks on. 

This heavy demand in areas surrounding New York City, taken in conjunction with the lack of demand in New York City itself, suggests that during the 4th of July weekend, more people actually leave the City, than come in to visit. Mayor Bloomberg might want to dispute this notion, but numbers don’t lie.

Moving on to the Labor Day bookings, the trends are much brighter – and faster – for New York City. In the previous post, we saw that the cutoff date for Labor Day bookings in the San Francisco market is August 6 – beyond which the prices start going up beyond standard rates.

For New York, the cut-off date starts much earlier. In five successive rate checks conducted between June 19 and July 20, the Labor Day weekend rates for New York hotels held steady at rates less than advance booking rates for non-holiday weekends. But in the sample taken on July 26, the Labor Day rates for all sampled hotels in New York City shot up. 

The W New York Union Square offered $249 nightly weekend rates and $344/night for the Labor Day weekend. For the Sofitel New York, it was $225/$265.

Rates outside the City – in the Hudson Valley and in Cape May, NJ – did not go up for Labor Day. On the contrary, Labor Day rates at NYC getaway hotspots like the Albert Steven Inn in Cape May actually dropped to $165  in comparison to weekend rates of $210. Rates at the aforementioned Bell House in Hillsdale remained the same ($150) as weekend rates.

This means that less New Yorkers go out of the City for Labor Day, as compared to the 4th of July. The overall inference here is that New York City’s hotel booking patterns depend not only on incoming visitors to the City, but also heavily depend on the vacation patterns of NYC residents. Why this is so a matter we’ll discuss in a forthcoming post.

Photo courtesy Starwood Hotels & Resorts Worldwide

The Blackstone Group (NYSE:BX), a private equity firm which owns Hilton Hotels Corp., has denied reports of a breakup of the hotel group to facilitate debt repayment obligations.

Hilton Hotels Corp.

Blackstone purchased Hilton Hotels for $26 billion in 2007 with associated debt obligations worth $20.6 billion – due for repayment in 4 years’ time.

Hilton has 3,200 hotels and 545,000 rooms in over 77 countries, which coupled with Blackstone’s other hotel assets, make the private equity group the world’s largest hotel operator.

However, Blackstone wrote down Hilton’s value by 49% last year alone.  While servicing the debt isn’t a serious problem for Blackstone, and values could rise in the near future, there’s two ways to look at it – Blackstone the private equity firm with a feduciary responsibility to it’s investors, and Blackstone the hotel operator willing to wait out the current dip in real estate values and hotel industry revenues.

A report in the Independent cited sources close to the firm as saying that Blackstone is looking at a range of options for the hotel group, including public listings for parts of the chain along geographic lines, debt-for-equity swaps with lenders, as well as trade sales of portfolios of hotels to rival companies.

A Financial Times report confirms that they’re looking at options to alter Hilton’s capital structure, such as a debt-for-equity swap. However, Blackstone denies that they’re planning asset sales. Furthermore, the Wall Street Journal quotes a Blackstone spokesman as saying that a break-up plan is not on the table.

If they’re not planning asset sales, and there’s no plan for a break-up, then this isn’t really that much left to discuss.

Caribbean hotel luxury

Before recession became a household word, hotels in the Caribbean were already experiencing a 16 percent drop in their bottom-line profits, the latest report from PKF Hospitality Research reveals.

According to Caribbean Trends® in the Hotel Industry, visitors to the Caribbean decreased by 4.0 percent in 2008. In turn, hotel revenues fell by 4.5 percent. “Even though Caribbean hotel managers were able to cut expenses by 1.1 percent in 2008, it was still not enough to offset the 4.5 percent decrease in total revenue,” explains Scott Smith, MAI, senior vice president of PKF Consulting. “The net result was an average 16.0 percent decline in unit-level profits for the typical Caribbean hotel in 2008.”

Certainly the economic pattern of 2009 hasn’t improved those numbers one jot. Some things our hotelier friends can control; others are simply situations where they bite the bullet and pay, like utility costs and insurance rates. Those shot up 9.1 and 6.3 percent in 2008.

Classy digs

You can guess the immediate consequences: hotel construction has ground to a halt (an estimated 49 percent of lodging projects won’t get off the drawing board even), and the Four Seasons Great Exuma closed its doors altogether. Hotel managers are cutting staff, even though wages are already lower than U.S. minimums, and are looking at green energy options to save moola in that corner. Thankfully, some of the governments are subsidizing or waiving property taxes in an effort to help their islands’ number one source of income.

PKF breaks it down like this:

Caribbean Resorts versus Comparable U.S. Resorts
2008 Percent of Total Revenue
—————————–

Caribbean         U.S.
Performance Measurement        Resorts        Resorts
———————–        ——-        ——-
Departmental Expenses           42.7%          43.8%
Departmental Profit                 57.3%          56.2%
Undistributed Expenses          30.1%          24.1%
Income Before Fixed Charges  27.2%          32.1%
Mgmt. Fees, Property Taxes,
Insurance                                 7.0%           6.4%
Net Operating Income*           20.2%          25.8%

Number of Rooms                  312               320
Occupancy                            68.0%           70.1%
A.D.R.                                $221.28        $224.24

* Note:  Before deductions for capital reserve, rent, interest, income
taxes, depreciation and amortization

And this is with crossed fingers that Mother Nature doesn’t go in there with a hurricane or two this fall and rearrange a few hotel walls along with the furniture.

The real long-term ramification, of course, is that hot deals to these resorts aren’t sustainable if people want to enjoy a relaxing, upscale vacation in the Caribbean in the next decade. But now that the 2-for-1s, free nights, airfare credits, and other perks have been in place for most of 2009, the danger is that travellers come to expect these prices as the norm. It will take a boring crash course in business economics to change that mindset — or another clever way to sell higher rates that are nothing more than the cost of doing business here in the first place.

Photography: dmap Travel Guide, davitydave

The 2009 six month hotel survey by Hogg Robinson Group shows up a mixed bag of results for the hotel industry and business travel.

Red Square, Moscow

To start with, Moscow retains pole position as the world’s costliest city for business travelers, even though the year on year rate declined by a whopping 14%.

Abu Dhabi – the only city in the survey to have achieved average rate growth of 5% in real terms when measured in local currency – came in second.

The remaining slots in the top 10 list are filled by Paris, New York City, Milan, Geneva, Hong Kong, Dubai, Copenhagen and Rome.

The results show that corporates are travelling smarter as they look to control travel costs and maximise their return on travel expenditure.

Margaret Bowler, Director of Global Hotel Relations at HRG, says that ”The shift in business practices has been substantial and those that adapt well can reap benefits from the unusual trading environment. Hotels are adopting sensible pricing in order to maintain current occupancy levels. At HRG, we advise clients to take advantage of the current conditions and use these to consolidate travel policies and negotiate better rates.”

Interestingly, though, the survey found that the high-end market is holding up well, with 5-star hotels clocking in the highest average rate increase of 7.7%, suggesting that hoteliers are holding out for rates at the expense of lower occupancy levels.

HRG’s data also suggests that the budget sector is feeling the heat from 3 and 4 star hotels. It has been squeezed due to its inability to respond more rapidly and at short notice in terms of flexible pricing to offer more competitive rates to suit market needs.

(Photo credit – yeowatzup)