FlyerTalk Forums - Big-City Hotels Suffer a Relapse

Quote:

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by EPS:
Things in San Francisco are really bad. http://www.flyertalk.com/forum/frown.gif</font>

Article from the 11/1/201 SF Chronicle:

Nothing is too visually arresting about the 1970s-era, block-shaped Best Western Grosvenor Hotel near San Francisco International Airport.

Clusters of power lines hang above the parking lot. Highway 101 traffic hums along just beyond the fence.

During the past couple of years, though, the Grosvenor and nearby hotels consistently filled 70 to 80 percent of their rooms -- sometimes more -- without selling postcard views or day-spa services. They simply kept their airport shuttles running smoothly and their business travelers fed and rested.

Now, neither airport proximity nor dramatically discounted room rates are bringing much relief to hotels near SFO, where decreased passenger traffic has paralyzed a niche lodging market.

Airport hotels have resorted to some of the steepest room-rate discounts in the Bay Area -- in some cases offering cuts of 40 percent or more compared with last year -- as they struggle to compete with downtown hotels. Downtown rates for a comparable level of service commonly run 20 to 40 percent higher.

Last year, a room near SFO cost $135, while a room in San Francisco went for $175.

Now, those $175 rooms in the city are available for $120 or less.

The upscale Argent Hotel on San Francisco's Third Street is advertising rooms for less than $100 -- as are the Westin St. Francis and the waterfront Hyatt Regency -- stark numbers for high-profile hotels in a city where last year's average daily rate topped $170.

Why stay near the airport, visitors say, when San Francisco and San Jose have deals aplenty?

That question signals particular challenges for outlying hotel markets such as the one near SFO.

"This is not a destination. People don't say, 'Where do we want to go for our honeymoon? Let's go to South San Francisco,' " said Greg Cochran, executive director of the South San Francisco Chamber of Commerce, of his city's concerns at a time when corporate travel is grounded.

"During normal business times, when San Francisco fills up, then we fill up, " Cochran said. "I don't want to say South San Francisco is the little brother -- but it is closer to the airport, a little more reasonably priced."

At the beginning of the year, South San Francisco expected its estimated 3, 000 hotel rooms to generate about $5 million in transient occupancy taxes during 2001, Cochran said. (An additional 1,000 rooms have been planned for construction during the next three years, he said.)

The city now expects to see half of that tax revenue.

In recent years, droves of corporate travelers looking for meeting space near the airport -- plus overflow crowds of convention-goers and vacationers from San Francisco and Silicon Valley -- led to plans for hotel expansions and new development near SFO.

Now, renovations and new projects including a 500- to 600-room high-rise hotel planned on San Francisco-owned property near the entrance to SFO are stalled while developers and investors rethink their finances.

A new Wingate Inn near SFO was scheduled to open this summer but construction has slowed in the slumping economy. The recorded greeting on the hotel's phone system this week said to watch for the opening by late September 2001 -- more than a month ago.

SLUMPING BEFORE ATTACKS
Since Sept. 11, hotel occupancy levels in cities such as Millbrae, San Bruno, San Mateo, Burlingame and South San Francisco have dropped further behind occupancy rates in San Francisco, according to hotel-consulting firm PKF. (Silicon Valley, already battered by the technology fallout, has experienced the worst Bay Area occupancy decline logged by PKF, but room rates there have been relatively stable.)

Even before the terrorist attacks, San Francisco airport hotels on average had slashed room rates by about 20 percent compared with a year ago, according to PKF.

Hotels in San Francisco, Silicon Valley and Oakland were making single- digit rate cuts.

But the big-city discounts have since intensified. Some San Francisco hotels are throwing in free daily parking (a $30 value in some cases), tanks of gas, discounted spa services, meals and shopping coupons.

Airport hotel operations tend to be more bare bones. Though layoffs are difficult to quantify, general managers said some airport-area hotels have cut positions or work schedules for 40 percent of their hourly workers.

At the Grosvenor Hotel on South Airport Boulevard, former General Manager David Lane said with some relief that he retained 90 percent of his staff this year despite an occupancy rate stuck at around 50 percent, compared with about 85 percent a year ago. Some salaried staffers have taken voluntary pay cuts.

Lane himself became an apparent casualty of turbulence in the hotel industry: The Grosvenor's management company in Florida fired him without explanation last week, he said.

Grosvenor executives could not be reached for comment. Lane, whose hotel has outperformed many comparable properties near the airport, said he did not believe his firing was based on financial performance. Nevertheless, yesterday he was looking for a job.

Occupancy in October also averaged 50 percent at the Holiday Inn San Francisco International Airport North, and occupancy levels have been about 40 percent at the Ramada Inn South San Francisco, said Bill Sherrer, acting general manager for both hotels.

A $179 room at the Ramada that includes as much as two weeks of parking now costs $119, Sherrer said. (Such deals are intended for business travelers who need one night near the airport and a place to leave their cars while they are away.)

The Grosvenor's room rate for walk-ins -- guests without prebooked specials or corporate discounts -- has dropped to $80 from about $130.

Lane came to the Grosvenor a year ago from its partner hotel on Nob Hill in San Francisco, where location typically justifies higher rates. This fall, the Nob Hill hotel was his competition, offering rooms for $89 or $99, he said.

Not all hotels in South San Francisco are suffering as badly. Growth in biotechnology and pharmaceutical companies near the airport helps upscale hotels such as the Inn at Oyster Point and Larkspur Landing, but it doesn't do much for the Best Westerns and Holiday Inns in the area, said Mary Riley, the Grosvenor's director of sales.

Normally, Riley would be reluctant to fill the hotel with leisure tour groups, which pay lower rates than vacationers and business travelers.

"Now when I get a tour and travel (reservation), I just jump for joy," she said. The hotel's group room rate has fallen from about $104 a night a year ago to $60 a night.

LOWER OCCUPANCY
The key to recovery lies in the makeup of SFO travelers.

The airport's passenger volume in late October has been at 75 to 80 percent of last year's level, airport spokesman Ron Wilson said. But unfortunately for hotels, far more SFO travelers appear to be staying in the homes of friends and relatives rather than in hotel rooms.

Meanwhile, competitive pricing and a glut of rooms are expected to continue helping San Francisco and other major destination cities attract so-called rate-sensitive guests away from outlying hotels, said Chris Kraus, a vice president in PKF's San Francisco office.

PKF has projected San Francisco citywide hotel occupancy to finish at about 66 percent for the year -- down from the firm's 74 percent projection before the terrorist attacks.

"The airport took a big hit in the beginning, before the cities did," said Eric Gustavson, co-owner of San Francisco Reservations, a central booking service for 270 Bay Area hotels.

For now, value appears the primary travel motivator.

"We're just going to take it head-on," said Cochran, in South San Francisco,

who hopes the rate-cutting will end soon. But "there's only so many people staying in hotels. It's supply and demand."