Little Rock Hotels Look Forward to Better Years

Joseph Rantisi, general manager of the Capital Hotel, hopes Bill Clinton can once again provide a boost to the Little Rock hotel industry when his presidential library opens in 2004.

After Clinton was sworn in as president, Rantisi saw the hotel industry boom with media, businessmen and even Whitewater investigators snatching up rooms.

Since the mid-1990s, however, demand has cooled.

Hotel occupancy in the Little Rock area dropped to 57.5 percent for the first six months of this year, down 5 percent from the same period in 2001, according to a study by Smith Travel Research.

The rate is lower than the national average of 59.5 percent for the same period, and that was down 3.6 percent from last year.

Even with the lower occupancy rate, Little Rock’s hotel industry is performing a little bit better in some key market indicators such as room rate and revenue per room than the national average.

That’s no comfort to the Peabody Little Rock, however, which couldn’t have picked a worse time to open than in February, after spending $40 million to renovate the Excelsior Hotel.

In December, the occupancy rate in Little Rock was a dismal 43 percent, off 25 percent from December 2000. And in January, occupancy rate was 47 percent, down 19.4 percent from January 2001.

The Peabody, a 418-room hotel in downtown Little Rock, has an occupancy rate in the low 50s, said Rick Ammons, director of sales and marketing for the hotel. Industry standards usually say a hotel needs to have about 60 percent occupancy to break even.

“We’re not meeting expectations that we would like to see, but I don’t think any hotel, individual or company in the United States is,” Ammons said. “Yes, we’re disappointed, but I think we’re moving in the right direction.”

Economic indicators

The main cause for the downturn in the hotel industry is the economy, which has caused corporations to slash their travel budgets, said Robert Mandelbaum, director of research at PKF Consulting in Atlanta, which studies the hotel industry.

“What we’ve learned is the hotel industry, as we’ve always known, follows the pace of the economy,” Mandelbaum said.

And the economy is taking longer to recover than expected.

“In the beginning of the year we were expecting to see some turnaround in the second half of the year and some meaningful gains in 2003,” Mandelbaum said. “I think what’s happened is the summer hasn’t quite panned out as strong and the year-to-date numbers are still behind 2001, which were behind 2000 even prior to September 11.”

The economy now is expected to improve in 2003, and that’s when the hotel industry will turn around as well, he said.

“What we’ve seen this year is a bit of a reversal of fortune,” Mandelbaum said.

In the 1990s, the hotel industry had a great run of record profitability and new development.

The more upscale hotels performed well while budget-priced motels struggled. In 2000 the industry had record numbers, probably the best in 60 years, Mandelbaum said.

While most hotels aren’t losing money, they aren’t making as much money as they were, he said.

“The top end of the market is the one that is off the most from historic performance where the more economical properties are actually … holding their own the best,” Mandelbaum said.

Duane Vinson, a research analyst for Smith Travel, said he’s seeing improvements in the hotel industry each week.

“Give it a little more time, and you’ll see the occupancy and demand return,” Vinson said.

A good sign for Little Rock’s hoteliers is that one of the real industry measures, the revenue per available room, was $34.10 in Little Rock, down only 3.1 percent from the same period in 2001. Nationwide, the figure was $50.11, a 7.5 percent plunge.

“A 3.1 percent decline compared to nationally a 7.5 [decline] — you really can’t complain,” Vinson said.

One reason Little Rock is faring better than New York, Chicago or San Francisco is because more visitors drive into the city rather than fly.

“We’re not as expensive as the other markets they’re comparing us to,” said the Capital’s Rantisi.

The other markets that have higher daily room rates, such as San Francisco and New York, are going to take the biggest hit because when companies cut back, travel is the first to go, Rantisi said.

“You travel only when you have to, and when you travel, you don’t spend as much,” Rantisi said. “Little Rock is not an expensive city. We are a major, major bargain.”

Room rates increasing

But Little Rock is getting more expensive. The city’s average daily room rate was $57.91 in the first six months of 2002, up 2.1 percent from the same period in 2001.

Nationwide, the average rate was $84.28, a 4 percent decline, Smith Travel’s research shows.

The average price for rooms should grow throughout the year and into 2003, Vinson said.

The Peabody said it was pleased with its average room rate. Group rates range from $99-$169 per room.

“We’ve been able to exceed our expectations from an average-rate standpoint,” Ammons said. “What we are not doing is achieving the occupancy levels.”

The occupancy rate that the hotel would like to see is anything above 60 percent, Ammons said. But, according to Mandelbaum, even occupancy rates in the 60s yield anemic returns on investments. Rates in the 70s are much more satisfying.

And that’s what the DoubleTree Hotel, just west of the Peabody on Markham Street, is enjoying. That hotel’s occupancy rate is 76.6 percent, according to Velva French, director of sales and marketing, thanks in part to the airline crews that fill about 60 of its 287 rooms each night.

French said the DoubleTree hasn’t cut its room prices to improve business but has a good mix of corporate and convention customers.

To drum up business, the Peabody’s strategy is to focus on attracting groups from Arkansas and surrounding states for conventions. Having the Statehouse Convention Center attached to the hotel is a major benefit to the Peabody, Ammons said.

“We’re looking for bigger things out of the convention center in 2003 and future years,” Ammons said. “There’s a lot of opportunity to book groups in the convention center.”

It is looking at booking meetings for business travelers as well.

“We’re doing whatever we can to get a piece of business within this hotel within reason,” Ammons said.

It also will continue to focus on providing top-notch service.

“We’re not cutting service levels,” Ammons said. “The Peabody is very proud of its service excellence program, and the service will continue and improve.”

Across the street at the Capital Hotel, Rantisi wouldn’t release an occupancy figure but he said service is also his hotel’s priority.

Without as many customers, “we were able to pay more attention to the little details that sometimes you just don’t have enough time to attend to when you have a larger group or a full house,” Rantisi said. “We didn’t cut down on the quality.

“We’ll take it on the chin if we have to, but we’re not going to compromise service.”

The hotel didn’t slash prices to its 126 rooms either. The prices range from $104-$124 on the weekends and from $143 on up during the week. It has special rates for companies that do frequent business with the hotel.

“We continued working with our clients based on their needs,” Rantisi said.

The Capital isn’t as interested in conventions, which make up about 20 percent of its business, as it is with the business traveler, the hotel’s “bread and butter,” he said.