Have we entered hospitality's economic twilight zone ahead of schedule? J.T. Kuhlman, former president of both InterContinental Hotels and One&Only Resorts, once told me that shifts in hotel supply and demand occur on a fairly dependable cycle. When I asked if the superheated luxury sector was in danger of adding too much capacity, he responded, "The day will come. The cycle [for hotels] is seven to nine years up, two to three years down."
The last down cycle started in 2001, and, give or take a few months, lasted two years. If the up cycle began in 2003, we might expect that good times would continue at least until 2010.
In the early days of 2008, when the Wall Street Journal could reasonably be classified by the Food and Drug Administration as a depressant, is it possible that the hospitality industry's up-down cycle is happily out of sync with the U.S. economy in general? Two classes of hoteliers -- the luxury sector and the sector supported by inbound foreign tourists -- have recently looked me straight in the eye and a) lied convincingly b) were overconfident or c) are truly thus far immune to the trials and tribulations of our weak-kneed economy.
"Our type of clientele is least affected by [the ups and downs of] the economy," said Offer Nissenbaum, managing director of the Beverly Hills Peninsula. "I'm not saying they're not sensible with their money, but when someone's very, very wealthy, this doesn't really have much impact" on their travel habits.
Dawn Smith of the Santa Monica Convention and Visitors Bureau said the hotels in her area were not feeling a pinch.
"We just finished a major economic-impact study of the community," she said. "We have marketed a lot internationally, and the majority of our visitors are from abroad. We're strong in the U.K., Ireland, Australia, New Zealand and Japan. The [weak] dollar has helped."
So anecdotal evidence suggests that Kuhlman's timetable is holding up, at least in the luxury and international realms where Kuhlman operated for most of his career.
"What, me worry?" appears to be the mantra. And there is some authoritative data to back up the anecdotal evidence.
PricewaterhouseCoopers' U.S. Lodging Industry Report and Forecast, released last week, predicted 5.6% growth in the average daily rate in 2008, nearly identical to last year's growth, and growth of 5.1% in revenue per available room. It also forecasted that the categories of luxury and midprice without food and beverage would see better-than-average increases.
Does this mean that despite the stock market's swings, unprecedented rate cuts by the Federal Reserve, cautions from the president and alarm bells from presidential contenders, at least some of us can feel comfortable with a "What, me worry?" approach?
Assume for a moment that the luxury marketers with whom I spoke, backed by PricewaterhouseCoopers data, are right to feel confident going into 2008. Does that tell us anything about other segments? Should those serving mass-market travelers begin to worry?
The latest weekly data report from Smith Travel Research was a bit unsettling regarding the market as a whole. For the week beginning Jan. 20, the average daily rate was up an average of 4.4% year over year. The variance in RevPAR was down, but by just 0.5%. The average occupancy rate, however, was down 4.8%.
Understanding the long-term significance of a single weekly sampling of hotel statistics is a bit like trying to predict how a cake will ultimately taste by sampling only one of its ingredients, but the 4.4% rate increase raises concern in light of the 5.6% overall bump in rates in '07, suggesting a slight pullback. And the 4.8% drop in occupancy is disconcerting and could account for RevPAR slippage despite higher rates.
Is it time to worry?
Maybe. Maybe not. The Beige Book, a compilation of economic activity compiled from reports by regional branches of the Fed, was also released last month. Here's its take on tourism in the last quarter of '07:
"Reports on tourism were mostly positive. The Atlanta district observed that Florida businesses catering to winter visitors experienced increased demand. The number of visitors from Europe and Canada were especially strong, and bookings for the spring were robust. Minneapolis reported that solid snowfall in many parts of the district helped spur winter tourism activity. Richmond's assessment of tourist activity was also generally upbeat. Tourism activity in New York City was said to have remained strong through year's end."
So perhaps it's premature to worry.
But apparently it's never too early to feel uneasy, uncertain and confused.