Hotels /A Building Slowdown and Aggressive Marketing Should Boost Room Rates, Occupancy
For Orange County’s hotels, 1988 may be the year that new construction finally slows and the cost of rooms begins to climb.
Efforts to drum up more tourist and convention business, meanwhile, are starting to pay off. More aggressive marketing, more business patrons and more tourists should help reduce the fierce competition among innkeepers.
There’s certainly no shortage of rooms: The county has 26,000 rooms in 122 hotels that have more than 100 rooms each. That marks a 69% increase since 1983, said David R. Kinkade, a hotel industry specialist with Laventhol & Horwath’s Costa Mesa office.
If the numbers don’t sound excessive, consider that 6,750 of those rooms are in the area surrounding John Wayne Airport. “That’s exactly the same number of rooms around LAX (Los Angeles International Airport),” noted Bernard Jacoupy, general manager of the Hotel Meridien, “and you know the difference in traffic.”
But the crunch could start to ease next year if county’s hoteliers see an expected reduction in the number of new hotels entering the market.
In 1988, just a handful of new hotels--a Ramada Inn in Anaheim, a Marriott all-suites hotel in Newport Beach and a Holiday Inn in Huntington Beach--are expected to open their doors in the county. That compares with half a dozen major new hotels this year and 13 grand openings in 1986.
With next year’s breather, “we can expect occupancy to go up several points” in the Newport Beach and airport areas, said Jim Burba, a partner specializing in hotels with Pannell Kerr Forster’s Newport Beach office.
At the same time, county hotels are adopting a more aggressive approach to marketing.
The 3-month-old Newport Beach Conference & Visitors Bureau will complete its first full year of operations in 1988.
And after a big push for more business, the Anaheim area next year expects to have at least 10 conventions attracting more than 10,000 people each--about the same amount of convention business as in 1987. The big payoff should come in 1989, when the number of major conventions is expected to double.
Besides the business trade, hotel occupancy rates should get a boost in 1987 from tourists who come to visit Disneyland and Knott’s Berry Farm. Both amusement parks had record attendance this year of about 13 million and 4 million, respectively. And both expect that new attractions--including Disneyland’s Space Mountain and Captain Eo and Knott’s planned Wild Water Wilderness--will keep turnstiles clicking again in 1988.
The tourism and convention surge could prove a boon to county hotels. Estimates are that 1988 could bring a record number of tourists--up to 36 million--if the county can continue to attract 3% to 5% more visitors each year.
But while hoteliers have some cause for optimism, they are not expecting to set any records next year.
In the Newport Beach and airport areas--where just 66.5% of available hotel rooms were occupied during the first nine months of 1987--average daily room rates dropped $1.01 through the third quarter to $72.19, according to Pannell Kerr Forester.
The picture was slightly better in the Anaheim area, where 77.3% of the rooms were occupied during the first nine months of 1987. There, room rates rose through the third quarter this year, climbing $1.10 over the 1986 rate to $67.80 per night.
“Every time a new property opens . . . there’s always a rate concession where everybody feels they have to do the same thing,” said T. Steele Edwards Jr., general manager at the Emerald Hotel in Anaheim. “And it’s the worst thing for us, because we’re all competing for the same business and losing more money.”
Discounted rates combined with empty hotel rooms brought financial problems to the doorsteps of several Orange County hotels in 1987:
- The Alicante Princess in Garden Grove last summer tossed out Princess Cruises as its operator in favor of Hyatt Corp. in what industry sources viewed as an effort to boost sagging profits.
- The Registry in Irvine was hit in late 1987 with a foreclosure suit by its principal lender for immediate payment of a $21.3-million debt. In November, the partnership that owns the hotel filed for protection from creditors under federal bankruptcy laws.
- The Anaheim Hilton and Towers suffered a public relations nightmare earlier this year when its owner, the Anaheim Hotel Partnership, was hit by a $5.6-million eviction suit. The 1,600-room hotel denied that it is having cash-flow problems and downplayed the suit as part of a contract dispute over payments on a city loan for two parking structures. But the Hilton redoubled its marketing efforts and brought back a veteran national salesman to help boost sales.
* The Emerald in Anaheim eliminated its public relations department and reorganized management, bringing in what one insider described as “real pros to get (the hotel) back on its feet.”
How close the industry comes to a healthy recovery remains to be seen. Most observers predict a year of eased competition before new construction in 1989 starts a new round of fighting for travelers’ business.
But at least in 1988, “with fewer hotels opening, rates will start to go up again. . . . Business should start to pick up,” Kinkade predicted.
Even so, Kinkade cautioned, “A property that is not one of the best in the market area or has less than a strong marketing staff or less than a regional reputation, is going to be put at a competitive disadvantage.”
Or, as Jacoupy at the Hotel Meridien put it, “Anyone who survives in this area . . . can go out and manage a hotel anyplace in the U.S.”
