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A New Normal? The hospitality landscape is quickly changing because of the economy. Here’s what you can do to mitigate the downturn’s effect. Friday, February 13, 2009 Glenn Haussman

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So how did we get here and what can we do about it?

That question seems to be fodder for most conversations these days. Hoteliers are finding themselves shocked at the current economic situation and the subsequent fallout that’s deflating the sails of the hotel business.  It’s paralyzing for some, empowering for others, but for many it’s created a state of confusion as to how to deal with the current reality.

Which brings us back to that pesky question: How did we get here and what can we do about it?

At a panel discussion this week sponsored by the Greater New York chapter of HSMAI, economists and educators tried to provide a coherent answer to this confounding question, while also providing some valuable tips on how to get through this stressful time.

Interestingly, it looks like the hospitality business is once again heading toward a “new normal,” which was a prevalent theme of prognosticators in the months after 9/11.

But, unfortunately, that revamped reality is looking to make the heady days of 2006 and 2007 an anomaly rather than a precursor to future lodging business trends.

Bernard Baumohl, Chief Global Economist for the Economic Outlook Group, said there is a massive cloud of uncertainty hanging over everything and everyone. It’s causing confidence to drop; Baumohl feels the post-financial crisis period is going to look a lot different than pre-crisis period.
“One of the most profound changes I see coming is a dramatic shift of household behavior. Consumers will try more to live within their means rather than rely on debt and a liquidation of savings to live a lifestyle,” said Baumohl. “The fallout is so huge and the ramifications so large it is very likely this issue will dominate the rest of our professional careers. However, I am not a doomsayer.”

Baumohl also expects to see a significant cutback on consumer spending, and he expressed his concern that leisure and business travel will be scaled back during the next few years. On the industry side of things he also sees a future with fewer mergers and acquisitions, a higher cost of capital for a number of years and shorter credit terms.

According to Baumohl, the hotel business shed 2.9 million jobs lost last year, including January 2009. It’s the first time the hotel industry has seen 13 consecutive months of job losses since these statistics started getting tracked back in 1939.

Meanwhile, Dr. Bill Carroll, Senior Lecturer, Cornell University School of Hotel Administration, teaches courses in economics, yield management, pricing and marketing distribution. He contends the lodging industry has entered a completely different stage of demand management. But he also stresses this is not a time to panic. After all, he said, every recession is followed by recovery and rebound.

For now he is most concerned with rate erosion and how to stem the discounting tide. “It’s not just about filling the top of funnel, it is about saving the funnel. Discounting is not what we want to do, but you will probably have to discount. You are only as smart as your dumbest competitor,” said Carroll.

He did stress that, if you are cutting rates, to try to hide those discounts with value-adds such as complimentary meals at the restaurant or a free night at the end of a stay.

Carroll also recommends drafting shorter-term contracts with group business to give the hotel better leverage on rates when the economy starts growing again.

Other strategies he said to employ include rewarding guest loyalty to keep them coming back even after the recovery, reach out to new customers that haven’t been to the property before and to up-sell guests on activities or services when they arrive at the property. “There is significant money to be made merchandising products at your hotel at this time,” he said.

Philip Wolf, President & CEO of PhoCusWright, is an expert in travel distribution strategy, technology and innovation. He cautioned it’s time to reinvent the way new business is attained since the old rules no longer apply in the internet age. “We are big proponents in long tail economics. If you are still following the 80/20 rule forget it. That strategy only worked in a pre-internet economy,” said Wolf.

In the lodging business, the long tail strategy means selling fewer room nights to more people rather than the bulk of available rooms to a select customer base. With a proper strategy the internet is a great way to get a hotel product sold to larger numbers of people. Wolf noted that 50 percent of all hotel rooms were booked online in 2008.

But it’s not all black clouds. Clinical Assistant Professor Donna Quadri-Felitti from the Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management School of Continuing and Professional Studies at New York University said pent-up demand is coming. “There will be a hunger coming to return to experiences we provide. To take advantage of this you have to not just have the capital available for a better mouse trap but you have to get the service psychology right,” she said.