Same Old Issues All Over Again

Just 18 months ago, two of the hottest topics in the lodging industry were the increasing strength of unions and the rising cost of gasoline. Unite Here, which represents more than 100,000 hotel workers in the U.S. and Canada, had its sites on hotel labor agreements in seven major hotel markets. Many thought 2006 would be a year of labor-management rancor and perhaps widespread work stoppages. And, with the memories of $3-a-gallon gas fresh in our minds from the summer of ‘05, we wondered what would happen if gas costs spiked again.

As we all know, 2006 was a relatively calm year on both fronts. While a few hotels lost ground to union demands, no strikes ensued. Gas prices actually receded during ‘06, and the hospitality industry enjoyed a near-record year.

Now both issues — labor unrest and skyrocketing gas prices — seem poised to again enter the active consciousness of many hotel brand companies, owners and operators. What makes that prospect more unsettling is the talk — perhaps it's still a whisper — of an impending slowdown in hotel business performance that could further rattle the confidence of the industry. I'm hesitant to use the time-worn “perfect storm” cliche, but it could be a rough ride for the tourism business in general, and the hotel industry specifically, as we enter the peak summer leisure travel season. A look at the issues:

Labor unrest

First the good news. Last year, new labor contracts were signed in five of the cities — New York, Chicago, Toronto, San Francisco and Honolulu — targeted by Unite Here, and late last month, four Starwood-operated hotels in Boston signed a six-year contract with the union. Los Angeles is the one target city not yet under contract.

Elsewhere, however, the forecast isn't so rosy. Contracts expire at the end of this month covering 50,000 hotel and restaurant workers in Las Vegas. While the two sides hope to hammer-out a new five-year agreement, they differ at this point on how much progress they've made. Many believe it's non-money issues that may hold up the Vegas contract. One major issue at stake is whether all, or some, of the workers at the many new projects under development in the city, e.g., MGM Grand's $7.4-billion Project CityCenter, will automatically be covered by the new contract.

It could be a long, very hot summer in the desert. And, of course, any financial or other gains made by unions in organized hotels usually spill-over to non-unionized properties, even in areas that aren't union strongholds.

Pain at the pumps

Back in 2005, the industry nearly panicked when gas-at-the-pump prices flirted with $3 a gallon. As of early this month, that benchmark has been exceeded in most states. Out West, travelers already pay $3.50 or more, and a recent poll shows that many Americans believe prices could top $4 a gallon this summer.

Once again, then, the question looms as to what effect high gas prices will have on automobile travel this summer. Research done by marketing guru Peter Yesawich in 2005 showed that less than three percent of travel demand is at risk if pump prices rise above $3.50. But what about $4, or $4.50? What is the breaking point for your customer, the American consumer?

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