by Cheryl-Anne Sturken | June 01, 2008

Deficits. Foreclosure. Layoffs. Recession. These are the watchwords of the current precarious state of the U.S. economy. What does all the bad fiscal news mean to planners and the process of organizing events? The picture is not nearly as bleak as events would portend. M&C spoke to industry insiders to reveal a shifting landscape in which real opportunity can be found amidst the uncertainty.

Reality check

It is far too early to trumpet the dawn of a buyer’s cycle, such as the one that followed 9/11, when hotel occupancies plummeted into the single digits and properties wrestled for the few pieces of meeting business out there. In fact, the hotel industry, which racked up breathtaking year-over-year profits for the last three years, is forecast to continue to see revenue and profit margins increase in 2008, albeit a tad less sharply.

“From a market and financial perspective, we believe the U.S. lodging industry is in a healthier position entering this economic recession than prior recessions,” says Mark Woodworth, president of Atlanta-based PKF Hospitality Research, citing a continued increase in room rates and healthy occupancy levels that will keep 29 of the top 50 markets tracked by PKF humming at full throttle. “The typical U.S. hotel will enjoy increases in both revenues and profits, but at a more modest pace,” he adds.

For planners, this outlook means it would be unrealistic to expect hotels to offer an avalanche of freebies or to forgo attrition and cancellation clauses. According to Bjorn Hanson, principal of New York City-based Pricewaterhouse-Coopers’ hospitality and leisure group, in red-hot markets like Boston, New York City and San Francisco, where occupancy and room rates are through the roof and new inventory is slow to arrive, there will be little change. PWC is forecasting a 62.9 percent average occupancy rate for 2008 -- just slightly off the 63.3 average notched in 2007.

According to a report by American Express, room rates are expected to climb further in 2008, between 5 and 8 percent -- particularly at the luxury level -- before they begin to level out by year’s end. (By contrast, in New York City last year, where year-round occupancies hovered at 83.3 percent, the average room rose 15.4 percent.)