Keep Your Hotel From Falling Off the Fiscal Cliff

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The hotel industry has been riding a wave of good news for so long it seems hard to remember the bad, old days of 2008, '09 and '10 when occupancies sucked and rates were worse. For the past 18 months or so we've seen impressive weekly, monthly and quarterly gains in all hotel performance measures. Disturbingly, however, we're now seeing a slight softening in some industry fundamentals.

Occupancies barely rose the week before last, and preliminary data from STR suggests occupancy for July may have dropped as much as 1%. Why the sudden backslide?

For one, the industry is facing tougher comparisons to the previous year, when the upturn was beginning to take hold. However, deeper factors may be at work that require you as hotel owners and/or operators to take notice and possible action.

It seems as though many people, and business owners in particular, are getting a little queasy about the road ahead. It might be apprehension about the upcoming election and the prospects of either four more years of the same or four years of the unknown. Others cite economic problems in Europe as a reason for pessimism, but I think most of us have “Greek fatigue” and don't take too seriously any threats from across the Atlantic.

Another possible and more plausible factor at work is the looming fiscal cliff over which the country may plummet at the first of the year. That's when, unless the so-far anemic Congress acts, a set of egregious economic actions are set into motion, including drastic cuts to defense and other government spending, an end to the so-called Bush tax cuts and payroll tax cuts and a costly shift in the alternative minimum tax. The fiscal cliff represents a conundrum. On one hand, a combination of tax hikes and cuts in government spending could propel the U.S. economy back into recession. If, on the other hand, Congress passes yet another stopgap measure, the problem is put off for a time when the underlying problems will be even more difficult to solve.

As a result, many businesses are playing it close to the vest, holding off hiring new people or investing in additional technologies and equipment. These kinds of moves have negative effects on business travel and even leisure travel, as nervous businesspeople and their employees also become skittish about personal big-ticket expenditures like vacations.

As hoteliers you need to focus your marketing messages and efforts to understand this collective angst and craft campaigns, promotions and rate structures to find and capture what business is available. Of course, this whole problem could blow over, particularly once the election is resolved and at least we know the general direction of the country for the next four years.

In the meantime, do what you must to keep your hotel from tumbling over the cliff.

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