Execs Talk State Of The Lodging Industry

PHOENIX? Industry consolidation and the labor shortage were two hot topics at the Lodging Conference held in Phoenix last month, where hotel executives convened to examine industry trends and talk business. ?We will see a continuation of consolidation,? said Steve Belmonte, president/CEO of Ramada Franchis Systems and executive vp/Cendant Hotel Division. ?There are still quite a few regional chains out there limping along. There have been 50 new product launches in the past 24 months. They will be ripe for acquisition by larger companies. Cendant, for example, can take a company and fuse it into the matrix and do good things with it.? Curtis Nelson, president/ CEO of Carlson Hospitality Worldwide, said the U.S. travel industry will see more vertical integration, which is already taking place in Europe. ?Wholesalers, air capacity and hotels will begin to be rolled up,? said Nelson, noting that there are already several roll-companies in business. ?There has already been consolidation in the retail and hotel industry. The U.S. is such a large market, it is difficult for vertical integration to take place but there are opportunities and we will begin to see it.? One executive from the franchisee side asked what kind of conflict would occur if consolidating companies, in this case, Red Roof and Motel 6, owns the real estate of a property they are also flagging. ?Where does that leave us?? asked Mike Patel, president of Diplomat Hotel Co. and chairman of AAHOA. ?If you franchise through a company with company-owned stores you may potentially have a problem,? agreed Belmonte. ?If you are in a marketplace with a Holiday Inn and they own a store down the road, you have to ask yourself where is the business going to go?? Nelson also concurred. ?We try to have brands that are complementary. You don?t want to take away the ability to have full rooms by having two- and three-star hotels in the same market. If any of us compete with licensees, we?ll be out of business. Companies with the right relationship with the franchisees will be careful not to step in and disadvantage the franchisee.? If there is to be consolidation, the buyer should take care to maintain the individuality of the hotel company it is buying, said Belmonte. ?If a regional chain is acquired by a big company and it becomes vanilla along with the other brands, it loses its individuality. That is unjust to the licensee,? he said. As for the general health of the hotel industry, the executives were upbeat. ?I think all would agree the industry is still performing fairly strongly,? said Belmonte. ?While occupancies are going south by a couple of points, ADR has been strong enough to keep us profitable. ?As long as the inflation rate stays where it is we will remain profitable. If the inflation rate goes up by 4% or 5% it could be bad. But certainly most operators today are profitable,? he said. Belmonte doesn?t necessarily feel the hotel industry is oversaturated. ?It?s a case-by-case market,? he said. ?It?s not as overbuilt as it is under-demolished. Even if the market becomes saturated in the limited service segment, that opens up opportunity for luxury properties, so the balance shifts.? Meanwhile, Nelson noted that this is a great time of opportunity for private companies since stock prices of publicly held companies are considered to be low at this point. Patel likewise agreed there is opportunity and that Wall Street is likely over-reacting to the hotel industry?s financial status. ?Wall Street analysts are jittery because of how REIT stocks are doing,? he said. ?If you look at the true picture of how they are doing, there is a lot of opportunity. If it is as bad as they say it is, how come not much is for sale?? In broaching another big concern for the industry? that of a labor shortage (see related story, page 34), Patel pointed out a possible solution ?We should look at two- to three-year permits for people from other countries to work here,? he said. In tryi