Hotels enter ’survival mode’

Upscale hotels have been hit hardest, and some have closed.

The W Hotel in San Diego was turned over to lenders in September after its owner, Sunstone Hotel Investors, defaulted on a $65 million loan payment.

The Wyndham Drake in Oak Brook, Ill., closed a month later.

The Drake had “about $3 to $5 million in deferred maintenance when it was shut down,” says Ted Mandigo, a hospitality consultant in Elmhurst, Ill. “It was struggling for occupancy and at a negative cash flow.”

On May 2, The Ritz-Carlton, Lake Las Vegas, in Henderson, Nev., will close because of a decline in business, says Vivian Deuschl, the chain’s vice president.

Meetings business decreased at many luxury hotels, Deuschl says, after Congress scolded insurance giant American International Group for spending about $400,000 at a luxury California resort following an $85 billion federal bailout in 2008.

Budget and non-luxury hotels haven’t escaped the downturn.

Sunstone, which owns various Marriott, Hyatt, Hilton, Fairmont and Starwood hotels, has turned over 13 other hotels to lenders. They include the Renaissance Westchester in West Harrison, N.Y., the Marriott Ontario Airport in Ontario, Calif., the Hilton Long Island/Huntington in Melville, N.Y., and the Holiday Inn Downtown in San Diego.

Citing decreased business-travel spending, Extended Stay last June filed for bankruptcy court protection with a debt of $7.6 billion. Its 684 hotels, which cater primarily to guests staying at least 18 nights, remain open. The company has five hotel brands: Extended Stay America, Extended Stay Deluxe, Homestead Studio Suites Hotels, StudioPLUS Deluxe Studios and Crossland Economy Studios.

Despite the industry’s deep financial woes, William Marks, managing director for San Francisco-based JMP Securities, says he doesn’t believe the industry has been permanently altered.

“We are just experiencing the cyclical nature of the industry,” he says. “Unfortunately, this is a more powerful downturn than normal.”

More cuts, fewer upgrades

To cut costs, hotel employees now perform a variety of tasks, says Roberta Nedry of Hospitality Excellence, which provides service training for hotel employees. Some brands have replaced experienced concierges with lower-paid, inexperienced ones.

Hotels also have become more vigilant about turning off lights and lowering thermostats, and are closing wings or floors when occupancy is down, First Hospitality’s Habeeb says.

Renovation and upgrades are being delayed, says Heney of Hotel & Motel Management.

“Many hotels just can’t go through with upgrades, say to flat-screen TVs in guestrooms, as soon as they’d hoped,” he says. “A room may not see new furniture but instead get new bedding, lighting and the like.”

Hotels’ food-and-beverage operations have also had to adjust.

Noticing a drop in corporate travel and spending, two San Antonio hotels — the Omni La Mansión del Rio and the Watermark Hotel & Spa — increased advertising to local residents.

“We were able to draw on new business that at one time may have been overlooked by our properties,” says John Brand, the hotels’ executive chef.

Managers at the Barona Resort & Casino in Lakeside, Calif., began noticing two years ago that guests were spending less on food and beverages, and dining more at the resort’s less expensive restaurants.

Guests began sharing appetizers, skipping appetizers and dessert and ordering a glass instead of a bottle of wine, says Duncan Firth, a chef and restaurant manager at the resort.

In response, the resort instituted discount menus and half-price entrees for some gamblers. This month, one of the resort’s restaurants is offering a $9.99 prime rib dinner and bringing back a 10-year-old menu “with prices to match,” Firth says.

The opposite may be occurring at some revenue-starved hotels.

Kansas-based business traveler Robert Bender, chief architect for a technology company, says he’s seen a big increase in food and beverage prices at hotels.

For guests: Low rates

In January, the average daily room rate in U.S. hotels was $93.93, a drop from $106.54 in January 2008 and the lowest for the month since 2005, according to Smith Travel Research. Similarly, the average room rate for all of 2009 — $97.68 — was the lowest since 2005.

Though the travel industry expects the number of travelers to increase this year, hotel experts don’t foresee rates rising quickly.