Modest Expectations

By Ed Moosbrugger

Santa Monica hotels will have to fight hard to increase business in 2003 following a partial recovery last year from the weak 2001. Continued threats of terrorism and war, economic uncertainty and stiff price competition make for a cautious outlook for the visitor industry. But beefed-up security at U.S. airports could help lure back some international travelers.

Some hotel managers express disappointment that industry forecasts aren't as bright as they had hoped .

"We're trying to be optimistic, but it doesn't look too great," said Dino Nanni, general manager of Hotel Shangri-La on Ocean Avenue. "We're hoping for a little bit better."

Paul Hortobagyi, general manager of the Georgian Hotel on Ocean Avenue, said he will be happy if business holds even in 2003.

At the Fairmont Miramar Hotel on Wilshire Boulevard, sales director Jim Pedone expects business to get off to a fairly slow start in 2003 and then begin to ramp up.

"I think 2003 will be very similar to 2002," Pedone said. "We are cautiously optimistic."

Sherry Kellogg, general manager of Hotel Carmel on Broadway, expects to show improvement this year. She noted some signs of life in international group bookings and said some foreign travelers are starting to feel more comfortable about coming to the United States because of improved security and outreach efforts.

Although business certainly wasn't booming at Santa Monica hotels in 2002 like it was in the banner year of 2000, Santa Monica did show more strength than many other areas.

"The Santa Monica market came back pretty well this year (2002)," said hotel industry consultant Bruce Baltin, senior vice president of PKF Consulting in Los Angeles.

Santa Monica had a hotel room occupancy rate of about 73 percent in 2002, Baltin estimated, up from 68.3 percent in 2001. The average room rate dropped about 6 percent.

For 2003, Baltin expects Santa Monica's hotel occupancy rate to dip to 71 percent and the average room rate to edge up 1 percent to $196.50. Things aren't as bad as the occupancy rate figures indicate; two new hotels distort the comparisons as the new supply is absorbed.

A better measure of the strength of Santa Monica's visitor industry is how many rooms visitors fill. The number of hotel rooms occupied in Santa Monica rose 7 percent in 2002 and should increase about 4 percent in 2003, Baltin said.

New hotels can cut into the City's room occupancy percentage even though total business is up. Pedone said, for example, that the Viceroy hotel, which opened in July, "dilutes demand a little bit."

Santa Monica continues to show better results than Los Angeles County as a whole. "We still are doing okay," Hortobagyi said.

Los Angeles County falls short of Santa Monica in both occupancy and room rates. Baltin expects the hotel occupancy rate in the county to rise to 65.3 percent in 2003 from 64.5 percent in 2002 and the average room rate to edge up to $117.50 from $117.

During 2002 in Santa Monica, hotel business from the entertainment industry improved somewhat, and the regional and local drive markets held up. But international business and some parts of the corporate market were slow, Baltin said.

"The drive markets are what held us together this summer," Pedone said. In contrast, the international market was "still pretty quiet" and "nothing like it was two years ago (2000)."

Unsettled international conditions continue to hurt the Santa Monica visitor industry.

It's "the fear of travel that dictates a lot," Hortobagyi said. "If they don't land at LAX, they don't come here."

Hotels continue to face intense price competition, partly because of the growth of comparison shopping on the Internet. "Everybody wants a deal," Nanni noted.

"The Internet is playing a bigger part," Pedone said. "It's become a lot more competitive on the Internet side. It's only going to continue to grow."

Price pressure affects not only the profitability of hotels, but also the amount of room tax revenues generated for the City.

Despite the challenges facing Santa Monica's hotel industry, an economic report prepared for the City by economists at California State University, Long Beach, has an upbeat assessment of Santa Monica's lodging market.

"We look for strong improvement in the next two years," the economists wrote.

The recovery, they said, "will be driven by the improvement in the national economy as well as the improvement in worldwide economic growth."