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The Hotel Industry’s Future Is In Your Hands

Stock Analyst Is Bullish on Industry Outlook

If you ask 10 hoteliers what kind of year 2012 has been for them, you’ll likely get seven or eight different answers. For most lodging owners and operators, it was either a good year, a so-so one, or one of uncertainty. Even when business improved, as it did for many hotels in most segments and markets, the question of what’s around the corner made it difficult to make hard decisions—everything from staffing levels and marketing budgets to whether to buy or build another hotel.

Of course, this year is just about behind us, and now we need to ask the next tough question: What will 2013 bring to the hospitality industry and, most importantly, to my business? While obviously no one knows for sure, the most reasonable answer is more of the same, with at least incremental improvement, at most a surer path to clarity and prosperity.

And despite all the external noise in your ear (the fiscal cliff, the presidential election campaign, the Euro crisis), the near-term prospects for your business are all in your hands. The strategic and tactical decisions you make in the next few months—not what happens in Washington, Athens or Cairo—will go a long way to determine whether 2013 is a good, bad or so-so year for you. Smart business people know that and realize opportunities are available no matter the environment.

While some people are pessimistic about the state of the U.S. and world economies and the prosperity of the tourism business, just as many—me included—are bullish or close to it. Since stock analysts tend to be hard-nosed observers of the industries and companies they cover, it was heartening to read a recent report from David Loeb of Baird Equity Research. While his paper focused on hotel REITs, his upbeat conclusions apply to the entire lodging industry.

His argument for optimism hinges on the prevailing fundamentals of the hotel industry, nearly all of which point upward. He acknowledges what he calls the near-term risks associated with the geopolitical environment but believes the supply/demand dynamic trumps those considerations. Except in a few markets (namely New York City), new construction is muted and well below long-term averages. Group travel, which has been the lingerer in this recovery, is finally beginning to revive. And, as he rightly points out, a lot of players in the industry are sitting on cash and other capital, ready to pounce on acquisition and turnaround opportunities.

Finally, he makes a point that every owner and operator should take to heart. He sees many REITs sitting at idle in terms of dealmaking. In the meantime, these firms are paying more attention to asset management and operations of their properties, an area where real gains in productivity and profitability can be made immediately and into the foreseeable future. I wouldn’t dare tell seasoned hoteliers how to best take advantage of these trends. Every property and market is different and so are the opportunities. However, the message all should embrace is the future belongs to those who maximize the many opportunities sitting in front of them.

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