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REVIEW SUMMARY
Industry. Hospitality
Trend. Improving occupancies
Key. Hoteliers won't start raising room rates until occupancies rise for an extended period of time.
Tony Lapi has coined a word for tourists who show up at hotels with no reservations: Floaters.
These are tourists who wander the state without reservations. If the weather's good at the beach, they may try to book a room at Lapi's Tween Waters Inn on Captiva. If the weather's bad, they'll float to the theme parks in Orlando.
Floaters drive hoteliers crazy. For one thing, it's hard to be sure how to staff a hotel when you don't know in advance whether you'll fill every room or just a few. And a competitor down the street may charge $10 less a night and snag the floater.
The group-booking window has shortened too, from months to just days, says Fred Hirschovits, president of Twenty/Twenty Worldwide Hospitality, which owns and manages hotels in Lee and Collier counties. A group of 50 people may book just seven days in advance, he says. “That's how last-minute it is,” he says.
With the exception of Naples, the Gulf Coast from Tampa to Fort Myers continues to show weakness in rates, says Dennis Reed, senior vice president with hotel consulting firm The Plasencia Group in Tampa. “There's no rate integrity,” he says. Everyone is cutting rates.
In conversations with hoteliers, Reed says many guests who show up without reservations care only about the rate they'll have to pay. “They don't care about the amenities or what the room looks like,” he says.
While spring occupancies showed some resilience, Reed says summer will confirm whether a recovery is underway. Don't read too much into spring's rise in hotel occupancies, he cautions. “The 2009 numbers were so far in the toilet that anything now looks good,” Reed says.
Revenue per available room, the key metric that hoteliers watch, is down in every area except Naples, according to data through February from STR Global. It's calculated by multiplying occupancies by the average daily room rate. “It's a race to the bottom,” says Jan Freitag, vice president of global development for the Tennessee-based research firm.
However, Freitag anticipates 4% increase in demand nationally as companies start spending again on meetings. What's more, unemployment among white-collar professionals is about half of what it is for the general population. White-collar leisure travelers who put off vacations in 2009 because of the economic uncertainty may feel more optimistic about booking a trip this summer.
Volcanic ash notwithstanding, airline-seat capacity isn't expected to decline as it has in past years. At Tampa International Airport, the number of seats will equal last summer's number and will jump by about 5% in August, says Trudy Carson, director of air service development.
Because airlines rearrange schedules more frequently than in the past, it's hard to be certain about the supply of seats beyond 90 says, says Victoria Moreland, spokesperson for Southwest Florida International Airport in Fort Myers. But summer looks promising, she says. The number of available seats into Fort Myers is up 14.3% in May and 12.8% in June as airlines such as AirTran, Sun Country, WestJet and Air Berlin boost service.
Super hangover
The most dramatic decline on the Gulf Coast occurred in the Tampa Bay area, where revenue-per-available-room fell 22% in the first two months of this year compared to the same period last year, STR data shows.
It's tough to compare against year-ago numbers because of the Super Bowl in Tampa on Feb. 1, 2009, which filled many hotels with fans throughout the region. But the drop stand outs.
“Even with the Super Bowl, it's still dramatic,” says Jim Bartholomay, general manager of the Renaissance Tampa International Plaza Hotel.
Although Bartholomay says demand for rooms increased, rates didn't follow. “It'll take all of '10 and part of '11 of strong continued demand before we can put (on) significant rate pressure,” he says.
Room demand may get a boost this summer, when large groups have booked Tampa's convention center rent-free. The concession is part of the city's effort to boost travel during the slow summer months. “It's really made a huge difference,” says Norwood Smith, vice president of sales for Tampa Bay & Company, the city's tourism arm. “It's made us extremely competitive.”
For example, the 18,000-strong Ancient Egyptian Arabic Order Nobles Mystic Shrine will descend on Tampa for a full week of convention in August. The rent concession for them is worth about $150,000, Smith says.
But competition is fierce and growing. Panama City has opened a new airport and discount giant Southwest Airlines has started flying to the Panhandle. “Maybe those Midwest travelers are going to go to Panama City Beach instead of Clearwater,” Reed says. “People are going to have another choice.”
In-state travel will continue to be the bread-and-butter summer business as Floridians continue to look for bargains a few hours from home. “They're not going to the Caribbean and they're not going to Europe,” says David Teitelbaum, who owns hotels on Ana Maria Island and projects revenues at his hotels could increase as much as 10% this year over 2009.
Resilience in Naples
The most resilient market on the Gulf Coast continues to be Naples, where very few new hotels have been built in recent years. Revenue per available room in Naples rose 3.2% in the first two months of this year compared with the same period last year.
Reed says Naples and Miami are the only two markets in Florida that have performed well in the spring. Miami has the benefit of South American tourists and Naples has limited room supply.
Even though occupancies rose 10% in Naples, average daily rates in Naples fell 6.2% this year through February. “Why drop rates?” Freitag wonders. “Is that necessary?”
When rate discounts begin, hotels often rush to beat competitors down even if the market is relatively healthy. “People panic,” says Hirschovits, whose company manages the Inn at Pelican Bay in Naples and hasn't dropped rates there. A tourist from the Midwest who visits Naples “isn't going to come down because I dropped my rate $10,” he grumbles.
The situation is different just a few miles up the road in Fort Myers, where hundreds of new hotel rooms were built during the boom. That's especially the case near Interstate 75, where land was more abundant.
But beachfront properties are in a better position to benefit from any summer traffic because supply is limited. “People who have jobs feel more secure,” says Lapi, who counts on Floridians for about 80% of summer business. “Even if it's get-aways, we'll do well.”
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