Hotels Hope Business Takes Off With Airport Terminal Opening : Accommodations: While business has been on an upswing, rooms have gone unfilled because of overbuilding in the area. The 1989 occupancy rate was just 60%.

By CHRIS WOODYARD

Jan. 25, 1990 12 AM PT

TIMES STAFF WRITER

The pending foreclosure of the Irvine Marriott comes at a time when major hotels near John Wayne Airport have been struggling because of overbuilding and resulting room rate wars that reduce profits, analysts said Wednesday.

Hotel operators are pinning their hopes for a turnaround on the scheduled completion of the new terminal at the airport and a planned increase in the number of flights to 73 a day, up from 55 now, by the end of the year.

“It’s tough for hotels in the John Wayne (Airport area) market, tougher for hotels relative to other parts of the country,” said Sandra Louvier, a hotel specialist for the accounting firm of Laventhol & Horwath in Costa Mesa.

While business at the hotels has been on the upswing, rooms are still going unfilled because of overbuilding, Louvier said. Higher land acquisition and other costs in the pricey airport area of Orange County compared to other areas of the nation require hotels to post strong occupancy rates to stay profitable.

Last year, however, only about 60% of the rooms were filled at airport-area hotels on average, said Joanne Sobota of Pannell Kerr Forster, an accounting and management firm in Irvine.

With construction of about 1,000 new hotel rooms over a three-year period ending in 1987, hotels were forced to offer deep discounts. As a result, the price of a room dropped from an average of $77 a night in 1984 to an average of $74 in 1988, Sobota said. Last year, the price rebounded slightly to an average of $78.

“The market has taken some time to recover, but it has,” she said.

But not before it took its toll on competitors last year. The 293-room Registry Hotel in Irvine went bankrupt and was bought by a group of Orange County investors. It reopened as the Radisson Plaza. Also, the 340-room Sheraton Newport Beach filed for bankruptcy.

Observers said the Washington-based Marriott Corp. may have created some of its own troubles by expanding too rapidly in the airport area, where it has four hotels. Besides the Irvine Marriott, there is the Newport Beach Marriott Hotel and Tennis Club and the Marriott Suites in Costa Mesa and Newport Beach.

Analysts said the four Marriott hotels apparently were trying to enhance their share of the market by catering to different segments. Instead, the chain may have ended up simply dividing its loyal customer base among different properties.

“It doesn’t make much sense to me that they would want them together,” said Gary Wescombe, a partner at the accounting firm of Kenneth Leventhal & Co. in Newport Beach, about the close grouping of the four Marriotts.

Some hotels are already preparing for what they hope will be a new onslaught of business. Le Meridien Hotel in Newport Beach is undergoing a $5-million face lift under the new ownership of Hong Kong businessman Stanley Ho. The Westin South Coast Plaza hotel has been undergoing a $10.5-million renovation.

Michael Deighton, general manager of Westin South Coast Plaza, said the remodeling was done “to stay a step ahead of the competition.” Only the strong survive, he said. “Unless the owners have deep pockets, it’s hard to stay in this market.”

Despite the years of hard times, Wescombe said his firm is optimistic about the airport-area hotel business.

“I would think within the next year we should see increased occupancy. And once (the hotels’ management) increase the occupancy, they can increase the rates,” he said.

AIRPORT AREA LODGING MARKET

Average occupancy levels have fallen by more than 10% since 1984, while room rates have increased only slightly.

Occupancy Rate

‘84: 70.6%

‘85: 65.2%

‘86: 60.3%

‘87: 62.7%

‘88: 63.4%

‘89*: 60.0%

Average Room Rate

‘84: $77.30

‘85: $76.30