Resorts await corporate comeback
Monday, February 8, 2010
The Northern Trust Open came and went with modest fanfare, and that’s a good thing. The talk during the opening two rounds was about Dustin Johnson’s power and putting, and during the weekend the focus shifted to Steve Stricker’s methodical victory march.
Those aren’t the flashiest storylines, but they’re a heckuva lot better than what Northern Trust endured last year, when many of the stories centered on the title sponsor’s entertainment and hospitality during tournament week. Those stories skipped over this point: Companies might enjoy the chance to contribute to charities and support an event through their tournament sponsorships, but they need something in return – namely, the ability to entertain their good customers.
Public relations nightmares like the one Northern Trust and other companies endured last year redounded through the resort industry, which typically depends on corporate customers for at least half of their revenues.
I recently talked with a number of resort and travel industry executives to see if the climate has improved for corporate entertainment. (That story will appear in the Feb. 12 issue of Golfweek.) The verdict isn’t good. Scott Anderson, group president of Hospitality and Real Estate at Kohler Co., which will host the PGA Championship at Whistling Straits in August, described the corporate mood as “nothing short of fear.”
“As long as unemployment is high, people are going to say, ‘How can (companies) go play golf at Whistling Straits when they laid my son off?’ ” Anderson told me. “They relate the two so directly, and it’s not related at all. They’re almost militant about it. I think it will be ’11 before there’s a change in any significant way.”
That’s obviously an unhealthy situation for the industry, particularly properties that are highly leveraged. The only good news, if you want to describe it as such, can be found in these two facts: leisure customers are starting to return, and hotel construction is slowing dramatically.
Jan Freitag, vice president of Smith Travel Research, noted that in the luxury hotel category, demand was basically flat last year – down just 0.6 percent – but the supply of rooms rose 8.9 percent. This led to discounting that attracted leisure travelers.
“Yeah, there was the AIG effect and yeah, there was a cutback in corporate travel at the upper end,” Freitag said. “But because rates dropped so much - 16 percent for the year - individuals said, ‘Oh, now I can afford to go.’ ” He added, “The industry is great at building into the downturn.”
But a correction is occurring. Freitag said that in December 2008, there were 186,000 hotel rooms under construction in the United States. By December 2009, that figure had dropped to 97,000.
That’s probably still more new rooms than the industry needs, but the trend is moving in the right direction.