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Getting A Room Gets Easier

Greg Bordonaro

May 04, 2009

Occupancy rates for Connecticut hotels dropped 14.5 percent during the first quarter of 2009 and revenue declined by more than 15 percent, showing signs that the industry is taking a beating as a result of the overall economic downturn.

On average, Connecticut hotels filled up about 43.7 percent of their available rooms during the first quarter, down from 51 percent from the same time period last year, according to data provided by Smith Travel Research.

Occupancy rates in Hartford were down 16 percent during the first quarter, with hotels filling up, on average, about 44 percent of their rooms.

January proved to be the worst month in at least seven years for Connecticut hotels, as the occupancy rate hovered around 40 percent during that time.

“These numbers don’t surprise me,” said Robert Winchester, president of the Waterford Hotel Group, which manages 16 hotels in Connecticut including the Holiday Inn Express in Southington and Hilton and Marriot Hotels in Hartford. “The decline started last October and seemed to get even tougher in the first quarter of 2009.”

Winchester said many corporations have cut back on travel expenses and that there continues to be an erosion of group and leisure business.

He said tourists and transient guests have also cut back on discretionary spending, which means hotels are seeing fewer patrons.

As a result, first quarter revenue for Connecticut hotels fell 15.7 percent to $144.8 million from $171.7 million a year earlier.

Revenue for Hartford hotels fell 17.7 percent in the first quarter to $47.8 million.

While some hotels performed better than others depending on the market they cater to, virtually all have seen a decline in business, Winchester added.

Another major factor plaguing the industry is the backlash against lavish corporate spending, said Chuck Moran, president of the Connecticut Lodging Association.

That outrage was sparked in September when AIG executives were caught spending over $440,000 at a California resort just days after receiving $85 billion in federal bailout money.

The incident created what industry insiders call the “AIG Effect,” which has forced all companies to think twice about spending discretionary income at a time when they are cutting staff and experiencing shrinking profits.

A recent survey by Meetings and Convention Magazine found that more than 20 percent of companies that have not received bailout dollars have canceled events “due to recent media and political attention.”

“Cancellations have occurred and those groups that don’t cancel,” have seen their number of attendees fall off, Winchester said.

Moran said it’s a tough market for hotels right now and they have responded by cutting expenses and downsizing their workforce. He said the decline in occupancy is also hurting the food and beverage side of their businesses as well.

“Until the corporate market feels comfortable and eager to spend money, it’s difficult to say when there might be a turnaround,” he added.

Despite the bleak numbers there was a bit of good news. The average daily room rates for Connecticut hotels remained relatively stable during the first quarter, declining only about 5 percent to $99 from $104 a year earlier. In Greater Hartford average rates dipped only 4 percent to $95.

Maintaining rates is important for the industry because “once you give your rate up it takes a long time to get it back,” said Jeff Higley of Smith Travel Research.

Higley explained that after the Sept. 11 terrorist attacks many hotels lowered their rates to attract customers and that it took about six years for them to restore regular prices, which cut severely into the profitability of the industry.

“Once you lower the rates people have an expectation that they will remain that way,” Higley said. “That puts pressure on hotels to maintain those low rates even when it’s not necessary to do so.”

Instead of lowering their rates, most local hotels are shifting their marketing strategies and offering promotions to attract prospective customers. Two-for-one dinner specials and free parking or Internet access are not uncommon offers in this market, industry insiders said.

Winchester said some hotels, including part of the Waterford Group chain, are even catering to market segments they normally wouldn’t go after.

“If a hotel is used to high-end clients, they may go after associations or smaller businesses,” Winchester said. “You try to attract customers that are willing to spend money. In this market you can’t leave any stone unturned.”

Reprinted with permission of the Hartford Business Journal. To view other stories on this topic, search the Hartford Business Journal Archives at http://www.hartfordbusiness.com/archives.php.
| Last update: September 25, 2012 |
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