Local hotels still hurting despite April revenue rise
(Crain's) — The local hotel market has gone from worse to bad.
The freefall that has sent so many Chicago-area hotels into the red has ended, but it's premature to say the market is recovering from its worst slump in more than 50 years.
Revenue per available room (RevPAR), a key measure that accounts for occupancy and room rate, rose 3.4% at local hotels in April, the first monthly increase in nearly two years, according to Smith Travel Research, a Tennessee-based research firm. Yet the suffering won't end without a sustained increase in business travel and, most importantly, corporate meetings and conventions.
"Where we're struggling as a city is in the corporate group business," says Ron Vlasic, regional vice-president of Kimpton Hotel & Restaurant Group LLC, which runs four downtown hotels. "We're all kind of fighting that same battle: How do we find the Accentures to do the big meetings that they used to?"
Demand for hotel rooms plunged in 2008 as businesses cut back on travel and meetings and cash-strapped consumers stayed home. The downturn deepened in 2009 and continued in early 2010. RevPAR hit $49.65 in the first four months of 2010, a 3.3% decrease from the year-earlier period. At downtown hotels, RevPAR fell nearly 8%.
But the declines have moderated in recent months, indicating that the market is bottoming out. While RevPAR for all Chicago-area hotels rose 3.4% in April vs. April 2009, it fell just 0.6% at downtown hotels, according to Smith Travel.
As hotels have slashed room rates, they have attracted leisure travelers, the most price-sensitive and least profitable customers. With companies becoming more confident about the economy, business travel is picking up, too, says Roger Hill, CEO of Gettys Group, a Chicago-based hotel design and consulting firm, and co-owner of the Hotel Felix and Hotel Cass in River North.
Occupancies have stabilized this year, but hotels still lack the leverage to raise room rates. Many, in fact, continue to cut them to fill rooms.
Mr. Vlasic expects the Hotel Allegro, a Kimpton-operated property in the Loop, to have an occupancy rate of about 60% to 63% this year, vs. 58% for 2009. He predicts the hotel's average daily rate will hold steady this year, still about 12% below 2008 levels.
Yet hoteliers like Mr. Vlasic won't feel better until they see a pickup in corporate meetings. Because groups rent meeting rooms and spend a lot of money on food and drink, they offer more revenue-generating opportunities and keep the hotel's kitchen and waitstaff busier.
"It kind of gets the whole machine working at the hotel," he says.
The other big piece of the puzzle is McCormick Place. Businesses have been sending fewer employees to trade shows and conventions at the South Side convention hall over the past two years, a big reason many hotels have struggled.
But hotel owners are relieved that state lawmakers recently approved a law that will make McCormick Place more competitive and, they hope, reverse a string of trade-show defections to competing convention cities.
Had the measure failed, "that really could have been catastrophic" for the local hotel market, Mr. Hill says.
The changes were the main reason the International Home & Housewares Assn., which had threatened to move its annual trade show to another city, said Friday it would keep the event at McCormick Place.
The overhaul "is a good step," says Laurence Geller, president and CEO of Strategic Hotels & Resorts Inc., the Chicago-based owner of the Fairmont Chicago and InterContinental Hotel on Michigan Avenue. "It is no more than a first step."
