Gearing up for a Potential 2019 Recession, Drop in Hotel Business

This year’s World Economic Forum in Davos, Switzerland called attention to the possibility of an impending recession.

While the consensus doesn’t necessarily signal an imminent economic downturn, there is mounting concern as world business leaders like JP Morgan Chase Chief Executive Jamie Dimon told CNBC, that issues such as Brexit, the U.S. government’s partial shutdown and uncertainty about the U.S. Federal Reserve’s next interest rate rise could lead to “a range of bad outcomes.” Noble prize-winning economist Robert Shiller predicted a bear market to come this year.

Clearly, that would take a toll on the world banking sector and financial markets. But the hotel industry, too, should be on high alert all considering the hit it took during the 2008 recession when occupancies dropped sharply, causing hoteliers to slash rates so low that they struggled to return to normal levels post-recession.

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The last recession also marked the advent of “the staycation” as hoteliers tried to convince their local markets to book getaways in nearby hotels. Sure, the hotel industry survived these tough times, but it isn’t any less immune to a repeat scenario than the banking and finance industries.

Nevertheless, maintaining rate integrity is key, according to Terry Holmes, executive director for Red Carnation Hotels. “It’s easy to lower your rates and very hard to get them back up because clients will wonder why you didn’t lower them before,” he said.

“A recession is the time to be even more diligent about protecting your brand by staying consistent.” Moreover, it pointed out that lowering rates also results in lower commissions for travel agents and recessions are a time when hotels and agents should support each other. “Add value, do not lower rates. Recessions don’t last forever,” he added.

Katie Cadar, director of leisure sales at the TravelStore in Los Angeles is optimistic for 2019, citing strong bookings for the year despite some clients’ apprehension over the effects of the government shutdown on the TSA and airport security. But even if an economic downturn should happen next year, Cadar said: “Recessions have a bigger impact on mid-range hotels because high-end travelers will still spend money and do what they want to do.”

So was the case for Cadar during the 2008 recessions when clients didn’t ratchet back on the amount of travel that they did. Instead, the nature of certain clients’ trips changed, with some opting to shorten their length of stay, others opting for a lesser room category and a few purchasing business class seats on flights instead of first class tickets. But the agency didn’t lay off any staff.

As for staycations, Cadar believes they’re here to stay as even her luxury clientele will book local weekend gateways at upmarket properties like L.A.’s Terranea Resort. In the event of another recession, “We can only listen to and take care of our clients,” she noted.

But change has already come to the all-inclusive segment if Hard Rock Hotels’ all-inclusive resorts in Mexico and the Caribbean are any indication.

The brand’s Mexico properties are already experiencing rate adjustments and that is expected to continue for the rest of the year. Although Frank Maduro, vice president of marketing for AIC Hotel Group, the sales and marketing group behind the properties, anticipates an economic slowdown this year. “But it won’t be to the extent of the economic collapse or bubble that we saw in 2008,” he said. “This slow down will be part of the regular economic cycle that we see every eight to 10 years.”

With a new Hard Rock set to open in Los Cabos later this year, along with last year’s addition of a new waterpark at the Hard Rock Riviera Maya and a Kidz Bop branded experience at the Hard Rock in Punta Cana, he’s bullish on the future for these resorts. “All-inclusives will definitely have an advantage due to the value they provide, specifically for family travel and destination weddings,” he added.

Conversely, the luxury resort Grand Residences Riviera Cancun, a “European Plan” (not all inclusive) resort in Mexico, has not seen its current rates affected and Onsite Manager Daniela Trava Albarran said promotional efforts for the property as well as the destination have been put in place to safeguard against any potential downfall. “Our rates are very competitive and we hope to keep them that way,” she said. “We do not foresee lowering rates.”