Travel expert: deflation is apparent
September 8, 2009
Lowering room rates won’t create demand, and Park City may have too many hotels.
That was some of the bad news Ralf Garrison, director of the Mountain Travel Research Program, shared with the Park City Area Lodging Association last Thursday.
The Program is a service funded through subscriptions whereby Garrison and his partners request information from individual businesses and resorts and then synthesize it into reports that he hopes are useful. Consequently, Garrison joked he was in an awkward position presenting bad news to his customers.
"We’re trying to be helpful," he said. "The playbook has been to plan on last year’s budget plus five percent not so much anymore."
About 70 percent of the U.S. Gross Domestic Product is based on consumer spending, and Americans were spending about 104 percent of their income. Not only will it be difficult to return to 2007 levels, but the business climate may never be the same again, he said.
The good news is that the ski industry is a good business to be in. Few companies outperformed resort stocks, he said.
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The Consumer Price Index and the Travel Price Index are both down, which is good for the consumer. Unfortunately, that also suggests deflation has set in, he said. In July, it was nearly 10 percent cheaper to travel than a year before.
The dollar is also softening and messing up the world economy; there’s talk of decoupling the dollar from the world economy, which would automatically decrease its value by about 22 to 30 percent. Ironically, that may actually save the real estate market by adding value to real property, he said.
Airlines are cutting flights in order to balance supply and demand and again charge prices that cover their costs. Unfortunately for Utah, Denver and Reno are keeping prices artificially low.
It doesn’t work the same in the lodging industry, and hotels lowering price to compensate for less demand is stupid, he said.
"If there’s no demand, a cheaper price doesn’t make a difference," he explained.
Cruise ships have to fill beds, so they’re always the first to make discounts. Then comes hotels associated with the gaming industry followed by those adjacent to amusement parks. that time, travelers demand bargain everywhere.
Nationally, the gap between supply and demand in lodging is the worst it’s been since at least the late 1980s, Garrison said. A lot of the newest product increasing that supply is luxury some of the properties in least demand right now.
With the Dakota Mountain Lodge and St. Regis at Deer Crest joining the scene for the first time this winter, that appears to be true for Park City. Comparing last winter with the year before, Park City was down 20 percent while the industry was only down 15. Garrison wonders if that’s because Park City has too much supply.
There’s been much talk of resorts courting regional markets to make up the decline in destination skiers, but Garrison wonders if that’s becoming a self-fulfilling prophecy. If advertising is spent in regional markets and timed 45 days out, how will they know destination skiers wouldn’t come?
"We discouraged brand loyalty inadvertently, and encouraged price loyalty last year," he said.
Unfortunately for Utah, Salt Lake City pales as a regional market compared to Denver and San Francisco for resorts to the east and west, he said.
Optimists also say that good snow trumps the economy, but the decline in destination skiers shows that’s largely only true of the regional market.
The good news, Garrison said, is that this winter may be the first difficult one in recent memory that the industry will have an opportunity to plan for. Easter moving from March to April hurt the late-spring numbers, but it will stay in April for several years. He’s also found that scheduling special offers and advertising to coincide with school-break calendars has been successful in other parts of the country.
"It’s sort of basic but I never did it before," he acknowledged.
Garrison said he would have liked to offer a prediction for the coming winter, but said realistically, it will take until mid-October to know if ’09-’10 will be the same or worse than last year.
An additional problem complicating predictions for winter is the absence of reporting from Deer Valley properties as homeowner associations have struggled to sign new contracts.
At the meeting, it was announced that nearly 300 units have signed on already with the new Deer Valley lodging entity that will be operating this winter.