Editor's note: This is the sidebar to "Reflaggings slow in difficult operating environment."
REPORT FROM THE U.S.—Typically conversions move a hotel down the chain scale.
“One of the things that happens during an economic downturn is that rebranding tends to spiral down,” said Chuck Pinkowski, founder of Pinkowski & Company, a consulting company based in Memphis, Tennessee. “You get a Hampton Inn that becomes a Days Inn. It comes down to what the market dictates.”
|
Chuck Pinkowski, Pinkowski & Company |
The market often is affected by new competition that has developed, changes in road systems, and demand systems increasing or decreasing, he said.
Gloria McCollum, a consultant with Pinkowski & Company, said brands have upped the ante in recent years by weeding out properties that are not conforming to their brand standards. Properties that didn’t meet the standards either had to spend a lot of money to conform or look for a lower-scale brand where they could spend less money but still have a reservation system available.
The downward spiral also affects high-end properties because luxury rates don’t have the same premium relative to other chain-scale segments as they did a few years ago, according to Bjorn Hanson, a clinical associate professor in the School of Hospitality, Tourism and Sports Management at New York University.
“The fixed costs of luxury hotels is an incentive for some owners to move downscale, the requirements for concierge and 24-hour roomservice and 24-hour doorperson service,” he said. “A hotel can go downscale to upper upscale and eliminate fixed costs without substantially reducing rate.”
The midscale-without food-and-beverage chain scale segment is a popular segment for hotels to enter, according to Hanson.
“For brands looking to convert from upscale or upper-upscale, often their economics are better by converting to midscale without food-and-beverage to focus on the most profitable part of their hotels, which is the rooms department,” he said. “The cost of conversion to midscale without F&B and economy is less than converting to midscale with F&B.”
But Brad Garner, VP of operations/client services for Smith Travel Research, said that some people have taken the opportunity to trade up. He said that the upper chain scales have such high barriers to entry that the only way to enter those segments is to convert.
|
Bjorn Hanson, New York University |
Independents aren’t immune from the lure of joining a brand, either. “An independent property, well maintained and in a good market, is a prime candidate for a brand,” Pinkowski said. “In an economic downturn, the independent properties are going to find it harder and harder to compete with the rest of their market.”
Hanson agreed that independent hotels have a higher propensity to convert in weak-performing environments because of the need for group sales and purchasing, and reservation systems.
Other hotels join the ranks of the independent because they have no other choice, Pinkowski said.
“As properties deteriorate or the markets become obsolete, it’s harder for them to find a brand,” he said. “As you spiral down, you’re going to run out of brands. You’re running the lowest average rate of anybody, usually the lowest occupancy, an in some ways you might end up being better off being independent.”
Pinkowski recommended that owners or managers look at what a brand’s reservation system is bringing in versus the cost of the system. It might be so expensive on a per-room basis that the hotel is better off not paying for it.