Thursday, November 13, 2008

How bad will it be?

This morning I received my Autumn 2008 edition of Hospitium’s The Lodging Ledger. It was no surprise that the majority of this quarter’s analysis focused on the economy, with a spotlight on a few large luxury transactions that have managed to trade, along with some other more gloomy figures.

But then I got to the section “Throwing Darts at 2009 Projections,” and then to its subhead “Bad or Really Bad?” I couldn’t help but release a sigh and solemn “oh no.” Can it really be worse than what we thought? It looks like Hospitium thinks so.

The firm took a look at forecasts made recently by the experts we all know: Smith Travel Research, PKF Hospitality Research and PricewaterhouseCoopers. The numbers focused on occupancy, ADR and RevPAR estimates for the coming year. While some were similar, for the most part they all differed. Here’s a quick rundown of the 2009 projections that Hospitium analyzed: STR predicts occupancy at -3.5%, ADR at +1.0% and RevPAR at -2.5%; PFK predicts occupancy at -4.4%, ADR at +1.3% and RevPAR at -3.2%; and PwC predicts occupancy at -3.5%, ADR at -2.4% and RevPAR at -5.8%.

To see who might have a leg up on anticipating what could happen next year, Hospitium decided to pull out the same numbers forecasted for 2002, months after the 9/11 attacks. According to The Lodging Ledger, it turned out PwC was most accurate on the drop in occupancy, and PKF accurately forecasted the dip in ADR. However, each turned out to be overly optimistic in the end.

So, Hospitium asked the same question that came to my mind, and probably to yours right now: Are forecasts today once again too hopeful?

Here’s what The Lodging Ledger said: “Based on analysts’ outlooks as well as guidance from many of the public hotel companies, the projections appear to once again underestimate the impact of the economic turmoil. The current state of the economy is far worse than what we experienced in the prior recession. The prior downturn was relatively short and shallow. This downturn is far-reaching, hitting a broad range of industries. Despite the amount of assistance pledged by the government to keep financial institutions afloat, assist with mortgage workouts, and maintain some level of economic stability, the lodging industry is just beginning to see the impact.”

The report goes on to state that due to the softening expected in leisure as well as corporate and group travel, this downturn will be a bit different than what we’ve seen before.

However, Hospitium further stated that some best practices can be taken from what was done between 2001 and 2003 to reduce financial stress, including cost-cutting to eliminate non-essential spending, reduce labor and limit capital projects. “While net income will obviously decline across all sectors of the industry in 2009, reducing expense burdens will hopefully keep companies fiscally sound through this recession as well,” the report states.

I’m guessing that’s pretty sound advice … especially if the “bad” actually does become “really bad.”

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