Every year, the International Society of Hotel Consultants polls it members as to the issues and challenges of most relevance to the hospitality industry in the year ahead. Once individual members have submitted their ideas, a "ballot" is circulated to the membership listing all of the current submissions, as well as the Top Ten from the prior year. Each member can vote for ten issues, finally resulting in the identification and ranking of the current Top Ten.

Not surprisingly, the Top Ten for 2002 showed radical change from the 2001 list. Only two of 2001's Top Ten survived the 2002 voting to make the list again:
• "Finding, Training, Motivating and Retaining Capable Employees" ranked eighth in importance for 2002, having ranked as the single most important challenge in 2001.
• "Brand Impact as Hotel Companies Become Increasingly Multi-Branded" fell from fourth place to rank ninth for 2002.

The newcomers to the 2002 list are obviously reflective of the events and developments that have taken place this year including: terrorism, declining economy, and increasing hospitality industry reliance on the Internet. As can be seen from the selections, the members feel that "staying alive" until travel can be stimulated is a theme embodied in the two highest ranking issues. The members apparently do not see the current situation as a cure-all for human resource issues of the past several years, since "Finding, Training, Motivating and Retaining Key Employees" has remained one of the Top Ten.

The 2002 Top Ten are described below:

#1 Survival in a Down Cycle

Relatively few managers have seen a down cycle as severe as the present one. Until recently, cost containment wasn't much of an issue, as even badly managed properties earned their mortgage payments. The current economy/disaster combination proved that even well managed properties could be devastated.

#2 Building Travel is THE Critical Issue Facing the Industry

To fill vacant hotel rooms, it is critical that people be encouraged to resume traveling. But "travel" may not be the same after 9/11. There may well be a permanent shift away from air travel and toward other forms of transportation such as rail, bus and automobile. Understanding changed attitudes and travel patterns, and perhaps repositioning hotels to meet changed needs, are key steps in removing barriers to travel.

#3 The Balance Between Profitability and Service

After September 11, there have been numerous layoffs in the hospitality industry. For an industry that is based on 'service', how will employee layoffs impact the guest experience? In an industry where quality of service is already an issue, will guests notice a service reduction? While hotels must be able to pay their bills, managers must be careful not to impact the guest experience. Guests who are not satisfied do not return, having an adverse impact on the hotel over a much longer time frame.

#4 Rampant Discounting is a Long Term Threat to the Industry

While hotel industry occupancy may recover relatively quickly, the prospects for average daily rate recovery and growth are dimmer due to:
• Rate discounting by panicked hotel operators, which may induce little short-term business, but may "retrain" customers, setting the market rate base lower.
• Loss of control of a large portion of rooms inventory to internet providers/intermediaries who exist primarily as discounters, causing a loss of the industry's pricing power.

#5 Capital is Largely Unavailable to the Hotel Industry

Money for new development is virtually non-existent and construction will slow considerably. This will benefit existing hotels by limiting new supply. Capital, however, is also difficult to obtain for existing properties that will need capital to renovate and remain competitive or to refinance upcoming loan maturities.

#6 Development of Better Key Indicators and Analysis Tools

In light of the financial challenges that many hotels are currently facing, it is critical that hotels develop a better ability to monitor and analyze key performance indicators and trends to support their strategic decision-making.

Three of these indicators are:
• Cash Flow Forecasting — unfortunately, as a practical matter, very few hotels have the ability to develop accurate cash flow forecasts. In today's challenging financial environment, it is critical that hotels be able to develop reliable cash flow forecasts upon which to make key decisions.
• Business Mix and Revenue Analysis — many hotels do not have adequate monitoring systems in place and/or the necessary skills to analyze business mix and revenue performance data to support strategic decision making.
• Profit Contribution Analysis — all revenue dollars are not created equal. And the cost of generating different types of business can vary dramatically from 1 or 2 percent for a repeat customer to 20% or more of revenue for a booking in response to an ad booked through a travel agent via an 800 number with frequent/honored guest points.

#7 The "Solvency Dance"

A key issue in the current environment is the whole process of remaining solvent. Whether it is managing a workout process, restructuring loans with lenders, threatening or conducting a foreclosure or bankruptcy process--all of these potential outcomes/processes will keep hotel owners, lenders, investors and consultants busy in 2002. How the process plays out in the courtrooms and conference rooms will certainly affect the ownership and financial structure of the industry for the foreseeable future.

#8 Finding, Training, Motivating, and Retaining Capable Employees

With unemployment at or near all-time lows the management and hourly pool from which the hospitality industry draws employees has many choices. If we compete for them as we have in the past (i.e. — do not improve the appeal of our industry), we are unlikely to attract and retain employees who can and will deliver the service message we expect.

#9 Brand Impact As Hotel Companies Become Increasingly Multi-Branded

As markets become saturated and hotel companies seek new development opportunities for themselves and their franchisees, the classic issue of impact arises. The issue has grown now due to the expansion of concepts and sub-brands which fall under the same corporate identity. Also, through mergers and acquisitions, multiple brands are now clustered in the same corporate structure (i.e., Starwood, Hilton, etc), and they are utilizing the same reservation systems. How will existing franchisees (pre-merger or acquisition) be handled, how will the brands be distinguished, how will impact be measured, and how will existing geographical brand exclusivity be preserved? How will franchisees be ensured that their rights and benefits are protected from inside competition?

#10 Hotel Value Decline

The poor economy and events of September 11th will likely mean a sharp decline in hotel values and a sharp increase in "distress sales".

If you would like more information about a particular issue, please contact Bob Patterson at 1-323-935-7101 or Lori Raleigh at 1-941-436-3915.