A primer on today's hospitality and tourism industry
In 2005, airlines increased their load factors to a record 76.5 percent; however, revenues decreased from $141 per 1000 miles in 2004 to $126 per 1000 in 2005. Coupled with the high cost of fuel and labor, as well as competition that major airlines had from discount carriers, the industry did not have a banner year of profits.
Attractions performed in a fashion very similar to 2004. Revenues were up 1 percent, but Disney, which celebrated its 50th anniversary in Anaheim, was responsible for a 6.7 percent increase. Hence, attractions generally were flat.
Cruise lines have been a big winner, up 8 percent per year in revenues since 1980. Now that is consistent growth!
Hotels were up 1 percent in supply growth and 3 percent in demand, causing an increase to 65 percent occupancy at a $90 rate. This pattern is likely to continue due to the time it takes to bring new supply into the market. When will the bubble burst for hotels? When supply outpaces demand, most likely in about 2009.
San Diego
San Diego's hotel market benefits from this supply/demand imbalance coming in at just over 72 percent occupancy at a $122 average rate; 2006 will be another great year for San Diego's hotels because there is no meaningful new supply coming in this year. Beginning in 2007, the addition of 6,000 new rooms (Hard Rock, Diegan, Hilton, Gaylord and Grand Del Mar alone will account for 4,000) will require that nearly 2 million new room nights of demand be created just to hold occupancy levels where they are currently. These rooms are expected to enter the market by 2009.
To put that in perspective, San Diego typically grows demand at 2 percent to 3 percent per year during periods of economic growth. If San Diego experiences the confluence of new supply and an economic slowdown anytime soon, there will be a tremendous negative impact on financial performance for the industry.
While San Diego enjoys a great package for meetings and leisure travel, it is also an expensive destination that is losing market share due to a lack of spending. The San Diego Convention and Visitors Bureau and the San Diego North Convention and Visitors Bureau both have seen significant budget cuts in recent years from the transient occupancy taxes collected by the city of San Diego.
TID
Last week was a historic moment for San Diego's hotel industry. The San Diego County Hotel-Motel Association voted (with no members in opposition) to approve the draft documents of the proposed Tourism Improvement District (TID). This TID would cause visitors to pay an assessment of 2 percent on top of the 10.5 percent Transient Occupancy Tax (TOT) and would provide a dedicated, stable source of funding for tourism promotion so that San Diego can compete with other destinations.
This is critical as San Diego lags in spending against its competitors. Markets like Las Vegas (spending more than $250 million per year) and Orlando (spending more than $70 million per year) are manufactured destinations that constantly outperform others due to market spending. San Diego's arts, attractions, beaches, culture, climate, golf, gaming, meeting sites, restaurants, retail, spas and wineries represent a more natural tourism landscape than most tourist destinations.
Meetings industry
The meetings industry is stable in the United States with meeting attendance, number of meetings and service levels expected to stay the same in 2006, according to a recent study conducted by "Convention South." Meeting professionals now require LCD projectors, with high-speed Internet access in second place. While hotel room rates are increasing, meeting professionals have some leverage as they are able to push business to alternate venues.
Hotel trends
On the finance side of the equation, "condo hotels" have become the finance vehicle du jour. The questions are, "how deep is the pool of potential buyers" and will the SEC step in and require developers to provide "full financial disclosure?" Perhaps most important, condo hotels will do well in markets where hotels would do well anyway and will fail in marginal markets.
On the marketing and operations side, new products are being developed as "lifestyle" brands. "W" was the first of these, and by any measure this brand has been a success. The new ones are Hotel "Indigo" by Intercontinental Hotels and "Aloft" by Starwood. These brands are at the boutique price tag offered by such products as Kimpton Hotels.
Students
San Diego is blessed to have San Diego State University's hospitality (HTM) program that's growing quickly. With 425 motivated students in the program, this market is armed with loads of talent to help manage the growth of this industry. Lecturers and professors alike have years of "hands-on" experience in the hospitality industry.
In closing, Peter Drucker once said, "strive for perfection despite the fact that you will never achieve it." We have great leadership in San Diego from Mayor Jerry Sanders to City Council Scott President Peters to our tourism industry leaders today. We must meet the challenge of being the top travel destination for meetings and leisure travel alike.
Rauch is the director of the Center for Hospitality and Tourism Research at San Diego State University and sits on the boards of the San Diego Hotel and Motel Association, the San Diego Convention and Visitors Bureau and the San Diego North Convention and Visitors Bureau. He can be reached at robert.rauch@sddt.com. Comments may be published as Letters to the Editor.
