What's keeping hotel chains up at night? Falling room rates, of course. Across North America, revenue per available room fell 19.3 percent in the first six months of the year, as rates and occupancy both tumbled, according to a new report from consultancy Deloitte Touche Tohmatsu.
But a hotelier's nightmare is a leisure traveler's dream. In August, rooms at three-star hotels in New York City -- the country's priciest lodging market -- went begging at an average of $133 a night: a 26 percent drop over last year, says discount travel site Hotwire.
"So far this year, business travel has been as bad as it's been in decades," says Clem Bason, Hotwire's president. "Leisure travelers have been seeing great deals out there, but now we are stepping into the twilight of summer."
As leisure travel continues to taper off with fall approaching, the big lodging companies could be forced into another round of price declines, particularly at the high end. Rates at five-star hotels could fall below $200 per night -- a key benchmark -- Bason predicts. "We're already there for several markets," he says. Rooms at some five-stars in Las Vegas are going for under $125 a night on his site, he says. Same thing in Portland, Oregon, and Vancouver.
Faced with the crummiest economy in decades, some of the luxury chains are now doing the unthinkable, Bloomberg reports: knocking a star off their top properties to save money and attract customers. Among the companies considering reducing their level of service are Starwood Hotels & Resorts Worldwide (HOT) and Hilton Hotels, which stripped a star from its five-star Hilton Vienna Plaza in Austria this year, a company spokeswoman tells Bloomberg.
If the downgrading trend continues, guests looking for a hotel's stylish cocktail bar or high-end spa -- both five-star musts -- may find them closed. Despite the gloom, hotel stocks have recovered from lows at the beginning of the year, with Starwood up 69 percent and Marriott International (MAR) ahead 23 percent.
But if Deloitte's predictions are correct, hoteliers still have some restless nights ahead of them. "All in all, at a time when consumers and businesses are already cutting back on travel, the remainder of 2009 will be a challenging time for hoteliers," Alex Kyriakidis, who leads the consultancy's Global Tourism, Hospitality and Leisure practice, said in a statement.
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