[The Practical Nomad Newsletter] Amazing Race finale, hotel prices, TSA screening, etc.

[Edward Hasbrouck]

TSA Screening Management Procedures posted online:
http://hasbrouck.org/blog/archives/001801.html

Appeals filed in credit/ATM card foreign currency fee lawsuit:
http://hasbrouck.org/blog/archives/001800.html

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This column with lots of links:
http://hasbrouck.org/blog/archives/001799.html

The Amazing Race 15, Episode 11
Hotel Price Forecast

Prague (Czech Republic) - Las Vegas, NV (USA)

"The Amazing Race 15" ended tonight in Las Vegas, thanks to "promotional 
consideration" from casino complexes that paid CBS to showcase them on the 
show.

Why are Las Vegas casinos (and the hotels they operate "to give gamblers a 
place to rest and recover, so that they can gamble more", as I once heard 
a casino-hotel pricing executive describe them) so much in need of 
publicity?

All hotels are hurting, of course, as I discussed during the previous 
season of "The Amazing Race" last spring and summer. But Las Vegas is 
truly one of the bomb craters of the implosion of the lodging industry in 
the USA, along with other largely fly-in destinations Hawaii (the outer 
islands more than O'ahu) and Orlando. Because both business and leisure 
travellers in all budget categories have cut their budgets and are 
choosing cheaper accommodations than previously, shifting occupancy to 
lower-priced hotels, the crisis is most severe for owners of luxury hotels 
at the top of the scale.

Drive-in visitors from Southern California can make up for some of the 
numbers of people who can no longer afford to fly to Las Vegas, but they 
are spending less on all aspects of their visits, including crucially how 
much money per person day they are able (or able to borrow) and willing to 
lose in the slot machines and at the gambling tables.

Existing hotels in Las Vegas, especially those currently at the high end, 
are also threatened by new and even more over-the-top hotels, such as the 
more than 6,000 rooms and almost 1000 condos in the four hotels (the first 
of which open this week) in the US$8 billion CityCenter complex. Do the 
math: The developers really did spend more than US$1 million per room -- 
mostly other people's money, but when it was lent a couple of years ago, 
who was counting?

Las Vegas (again, followed by Hawaii and then Orlando) is the extreme case 
of all of this in the USA, as is Dubai (as we saw earlier in this season 
of the race) in the rest of the world.

Something has to give, and in the calculus of supply and demand, that 
"something" is the average daily rate (ADR) per room that hotel owners can 
get away with charging.

I was just in Orlando for the PhoCusWright conference of travel 
executives, as some of you may have seen from my Twitter messages. 
Attendance at the conference exceeded the organizers' expectations, but 
there were still so many empty rooms at the 5-star conference venue that 
walk-ins who hadn't booked ahead reported being offered rooms at half the 
"early-bird" conference rate.

Near the cheaper hotel where I was staying (I had made the mistake of 
hedging my bets by booking a couple of months ahead on Hotwire.com), the 
marquee of a Ramada Inn -- not a Motel 6, mind you -- on the strip just 
outside the entrance to Disney World was flashing its offer, "Walk-Ins ... 
$29". With deals like that, who needs Hotwire? Not only can you travel 
more cheaply, but you can travel more independently, since there's less 
reason to commit in advance to where you'll be each night in order to be 
sure of finding an affordable place to sleep. There hasn't been a better 
time since just after 11 September 2001 for unplanned travel.

And the good news for travellers is that's it's going to get worse for 
hotel owners (which means better for travellers) before it gets better for 
them and worse for us.

I was underwhelmed by the "innovations" presented at the PhoCusWright 
conference, few of which really addressed travellers' basic needs or most 
common trip types. The award for innovation went to Amadeus -- 
appropriately challenging those who write off "legacy" CRS/GDS companies 
who "were practicing cloud computing years before the term was invented" 
and "were engaged in e-commerce decades before the Internet" with 
"industrial strength" stable and reliable applications -- for a new travel 
planning tool, but not one that I think will make a difference for most 
travellers. Most leisure air travel in the USA is to visit friends and 
family, not hotels or resorts, but I have yet to see a travel planning 
service optimized for the "VFR" user case.

Perhaps the most telling admission came from Expedia CEO Dara 
Khosrowshahi: "There's a lot of really basic [search] stuff that a lot of 
us aren't doing yet." But when I asked him about some of the features they 
could easily add to improve their search results -- weight flights from 
Oakland as $20 more expensive than those from San Francisco because it 
costs me more money and time to get there, weight flights that earn 
American AAdvantage Miles at 2 cents per mile of credit, weight flights 
that arrive at SFO after the last BART train by $40 for the greater cost 
of a taxi home, or other similar preferences I could define in my user 
profile -- his only reply was that travellers don't really know what we 
want, or what our priorities are. So, presumably, there's no reason for 
his travel company to invest in tools to even try to show us the choices 
according to our stated priorities.

Lame, but typical of the industry. A more honest answer would be that 
intermediaries like Expedia have chosen to work for suppliers of travel 
services, not for consumers. They prioritize the options they show us, and 
the preferences they program their systems to take into account, according 
to what they think will most effectively sell us the most profitable 
products and services for them. Our preferences aren't their priority at 
all.

The highlight of the conference was a pair of presentations on the 
economic prospects for the lodging industry by PhoCusWright hospitality 
industry analysts and their partners from the Cornell Hotel School. In 
March of this year, they reported on the outlook for hotel and resort 
owners as dismal but not desperate . By the time of last month's 
conference, they had backed away from the "'not desperate" assessment, 
although of course, "The desperation isn't for the consumer, but for asset 
owners", according to Bill Carroll of PhoCusWright and Cornell.

It takes 2-3 years from financing to completion of a major hotel, longer 
for some mega-projects. That means that there are still lots more hotel 
rooms in the construction pipeline, for which funding was committed 
shortly before the recession, to add to the current glut.

Gary Loveland, CEO of Harrah's, noted in his presentation at PhoCusWright 
that since the recession developers have walked away, gone bankrupt, 
and/or suspended construction on casino-hotel projects even when they were 
"a billion dollars pregnant" with sunk costs.

The Trump casinos and hotels in Atlantic City went bankrupt and were sold 
for about 20% of their previous valuation earlier this year, while 
completion of the Fontainebleau in Las Vegas (including filling the topped-
out shell of a 60-story hotel tower) awaits new financing from whoever 
buys it at the pending bankruptcy auction. As of now, the high bidder for 
the Fontainebleau is offering about US$150 million for a project on which 
more than US$1.5 billion has been spent, or less than 10 cents on the 
dollar. And as Bill Carroll pointed out at PhoCusWright, "Someone who buys 
a property for 10 cents on the dollar can rent it for 20 cents on the 
dollar" and still make money -- driving down rates for competing hotels 
(and possibly driving them into bankruptcy too, in a vicious cycle).

On top of that, many people are selling their vacation houses or condos to 
cover the mortgages on their primary residences or simply their costs of 
living, or renting out vacation homes that they can't afford to use 
themselves. As consumers exhaust their savings, severance pay, or other 
assets, that will continue to increase the supply of vacation rentals.

The bottom line according to PhoCusWright is that overall occupancy of 
hotels and vacation rental accommodations in the USA will remain below 60% 
for at least 2 years, through 2011.

Room rates in the USA will continue to go down in the coming year, 
bottoming out in late 2010 but not returning to levels they were at in 
2007, just before the crash, until 2013.

Elsewhere in the world, Carroll predicts that hotel rates in the BRIC 
countries may not decline as much. But especially in China these are 
already such great value compared to hotels in most of the rest of the 
world thta they will remain a bargain, and increases in rates in local 
currency in Brazil have been offset by the decline of the Brazilian Real 
(BRL) against the US dollar (USD).

I've previously listed some of my favorite accommodations booking Web 
sites for different parts of the world, and how they work . "These 
channels for unloading distressed inventory aren't as well developed in 
much of the rest of the world, especially in the Asia-Pacific region," 
Carroll says (and I concur). So, "Tour operators and aggregators are in 
the catbird seat" if they have contracts with hotels that give them access 
to discounted rates for their clients.

Many tour operators will make bookings for independent travelllers, even 
if you aren't on a tour. Many Asia-Pacific hotel discount Web sites are 
operated as offshoots of tour operators or agencies like this. But to get 
their rates, you have to prepay the tour operator, and there is really 
nothing you can do to force a hotel to honor the booking if you show up 
and the hotel claims never to have heard of you, or the tour operator, or 
claims that the operator hasn't paid them for your room or that the 
voucher you were given is invalid. On the other hand, as long as (1) 
occupancy is low, (2) there are competing hotels nearby that also have 
empty rooms, and (3) you are genuinely ready and able to go elsewhere if 
the price isn't right, walk-up prices at almost any hotel, anywhere in the 
world, are negotiable at check-in.

Pain for hotel owners can mean pleasure for travellers, but intermediaries 
can go either way. Online travel agencies first became profitable on the 
high markups they could charge on discounted hotel rooms after 11 
September 2001. This year at PhoCusWright, I was greatly surprised to see 
to see hardly any of the bottom-feeder "distressed inventory" business 
models I expected to dominate the event. Instead, most participants wanted 
to ignore the present, and focus on the "inevitable" recovery to come.

Time will tell whether or not they've got their heads in the sand, but if 
I 
were a gambler, I'd be selling short hotel stock, not putting my money on 
the 
table in Vegas or investing for any travel industry recovery. The real 
bottom 
line is that the window of opportunity for affordable, spontaneous, 
independent travel without reservations is likely to last for several 
years -- plenty of time to plan for, and take, that big trip you've always 
wanted, if you commit yourself now to do it as soon as you can get 
organized.

Bon voyage!


----------------
Edward Hasbrouck
<edward at hasbrouck.org>
<http://hasbrouck.org>
+1-415-824-0214

"The Practical Nomad: How to Travel Around the World" (4th ed. 2007)
"The Practical Nomad Guide to the Online Travel Marketplace"
<http://www.practicalnomad.com>

Also available for Kindle, iPhone, or iPod Touch:
http://www.amazon.com/gp/product/B002QXO6QI?tag-edwardhasbro

Around-the-World and multi-stop international air tickets:
<http://hasbrouck.org/tickets/>

Disclosures & Disclaimers:
http://hasbrouck.org/disclosures.html