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Bullish Figures Not All Fun, Games for Hoteliers

San Diego’s hotels placed third among the nation’s top destinations in a year-to-date ranking of occupancy rates through November.

But local tourism officials aren’t cheering. Instead, they’re watching their backs.

According to Tennessee-based Smith Travel Research, the county’s lodging industry logged an average occupancy rate of 72.7 percent between January and November , up 2.8 percent from the same period the year before. New York City was first with a rate of 81 percent, while Honolulu ranked second with 80 percent.

“In an improving economic environment, we are holding our own,” said Reint Reinders, the chief executive officer of the San Diego Convention & Visitors Bureau.

“We should trip along with 2 percent or 1.5 percent annual increases,” Reinders said. “But we need to stay focused on our market share, because we are seeing some other destinations gaining.”

A year-end report of the country’s top 25 destinations should be finalized during the last week in January. However, a preliminary report showed San Diego’s hotels declined in occupancy rates throughout most of December. Heavy rains were a contributing factor, but Reinders also said that November and December 2003 were exceptionally strong months.

Nationwide, year-to-date hotel occupancy through November averaged 62.4 percent, up 4.7 percent from the same period in 2003.

Jan Freitag, the director of client services for Smith Travel Research, attributed much of the country’s increase to the return of the business traveler, who had all but disappeared from the scene in the wake of the Sept. 11, 2001, terrorist attacks.

“The slump the (nation’s) hotel industry went through is mainly due to the absence of the business traveler who was on a corporate budget,” Freitag said. “And now we see the return of that business traveler on Tuesday and Wednesday nights, particularly in New York City, where midweek occupancy rates approach the 90 percent range.”

New York and Honolulu made greater strides than San Diego in pushing up the 11-month, year-to-date occupancy rates , 8.4 percent and 10 percent, respectively.

Good News And Bad News

As Reinders pointed out, San Diego’s hotels rely less on business travelers than leisure travelers, so they withstood the recent economic downturn better than most other large cities. Yet while business travel is up nationally, leisure travel is also expected to grow nationally and locally.

“The largest segment of travel nationwide is leisure travel, and that never really dipped,” Reinders said. “It will continue to go up. That’s the good news for San Diego. Leisure travel is 85 percent of our business.

“But you’re vulnerable when you run higher occupancy rates, because when you’re strong you don’t have to offer discounts and deals. So there are a lot of people gunning for your customers.”

The year-to-date average daily room rate for San Diego’s lodging industry stood at $114.72 through November, up 1.9 percent compared with the same period in 2003. The revenue the county’s hoteliers raked in from the rooms they let nightly rose 4.7 percent, reflecting an average $83.36.

Las Vegas Gambles On Tourism

While the occupancy rates at San Diego’s hotels are expected to place in the top tier among leading destinations in 2004, Reinders said the Las Vegas lodging industry, which announced plans to add 20,000 hotel rooms in the next few years, poses a huge threat to San Diego’s ability to lure convention and leisure travelers.

“To fill those rooms, Las Vegas hotels will have to attract an additional 5 million visitors annually,” Reinders said. “Presently, they have 37 million a year. So they want 42 million. The strategy is to spend over $1 billion on marketing over the next five years to get to that goal.

“That is a big, hairy, audacious goal, and if they succeed, you know where some of that is coming from. It’s going to come out of our pocket. So we’re very concerned regarding declining marketing funding when we’re up against big brothers with a lot more money than we have.”

Smith Travel Research did not list Las Vegas among the top 25 markets in its most recent survey. But it reported that hotels throughout Nevada had a year-to-date occupancy rate of 72.6 percent through November, vs. 69.8 percent in the same period in 2003.

For fiscal 2004-05, which ends June 30, ConVis was allotted $3.7 million in funding for advertising. Its total operating budget is $12.5 million, of which $9.8 million is allocated by City Hall from a 10.5 percent hotel-room tax collected within the city limits. The rest comes from other revenue sources, including membership dues.

The advertising fund has remained flat during the last four fiscal years despite a 21.5 percent cut in the operating budget this year and a 10 percent cut the year before. However, as ConVis spokesman Sal Giametta noted, the buying power of the ad dollars has declined significantly since 2001.

The marketing subsidy for the San Diego Convention Center , $3.3 million for the current fiscal year , is among the lowest of any public convention facility in its “competitive set,” said Fred Sainz, the vice president of public affairs for the San Diego Convention Center Corp.

Sainz also warned San Diego could lose its status as one of the country’s top-ranked destinations if the city does not increase funding for tourism promotion.

“If San Diego’s market share continues to soften, it could drop to fourth place, then fifth, then sixth, because the fact is, San Diego is looked at as the county to beat,” Sainz said.

Yet, he also said that trying to convince City Hall of the need to augment marketing funds for ConVis and the Convention Center will be “an uphill battle,” at least in the near future.

Sainz declined to be more specific. But there is speculation that City Hall’s under-funded public employees’ pension plan has brought the municipal government to the brink of bankruptcy.

Meanwhile, San Diego “has more hotel rooms available and more that need to be sold,” Reinders said.

San Diego’s lodging facilities added 1,436 rooms to reach a total of 51,398 at the end of 2004, and projections are that an additional 400 or so will be added in 2005.


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