BAYSIDE BUSINESS: Still Room at the Inns

By Ed Moosbrugger

Santa Monica hotels have resorted to sharp cuts in room rates to help bolster occupancy in the wake of the Sept. 11 terrorist attacks, but business still remains weak.

“It has stayed down,” said Sherry Kellogg, general manager of Hotel Carmel at Second Street and Broadway. But there is a question of just how bad business is.

When PKF Consulting recently reported that Santa Monica hotel occupancy dropped 12.4 percent in October compared with a year earlier some hotel managers were surprised. Their experience told them it was a lot worse than that — more like 25 to 30 percent down.

“We’re all in shock with that report,” Kellogg said. “I don’t buy that at all.” But Bruce Baltin, the respected senior vice president of PKF, stands by the figures, saying they are based on a survey of 14 hotels with 2,538 rooms. “Our sample in Santa Monica includes pretty much all the major hotels,” he said. Indeed, experience varied among hotels.

The Fairmont Miramar Hotel at Wilshire Boulevard and Ocean Avenue wasn’t hit as hard as some other Santa Monica luxury hotels because it does substantial regional business while some other hotels rely more on national and international markets, said Jim Pedone, director of sales and marketing.

“Quite honestly, it (Sept. 11) didn’t affect us that big,” said Pedone, who noted that the hotel industry was already suffering from a weak economy before the terrorist attacks. No one was surprised at the other key finding in the PKF report that the average room rate plunged 14.3 percent in October in Santa Monica vs. a year earlier.

Reports for November and December probably will show continued weakness. Misti Kerns, executive director of the Santa Monica Convention & Visitors Bureau, said in mid December that she expects hotel occupancy of just below 60 percent for November (vs. 64.65 percent in October and 58.04 percent in September according to PKF).

This was the worst November in his six years at The Georgian Hotel on Ocean Avenue, said General Manager Paul Hortobagyi. Around mid December, things were looking “really bad” for everyone, Kellogg said.
At the Best Western Ocean View Hotel on Ocean Avenue, business has been going up and down in waves, said General Manager Robert Farzam.

The hotel was hit hard following Sept. 11, but discounts and specials are helping to stabilize business. “Occupancy is getting better but rates are a lot lower,” Farzam noted.

All of this is important to more than the hotels, of course, because tourists are big spenders in downtown Santa Monica, and the hotel room tax brings millions of dollars a year to Santa Monica.

On the positive side, there are some hopeful signs for 2002 even though the new year won’t come close to matching the strong performance Santa Monica hotels experienced in 2000.

“We’re pleasantly surprised, very much so” at how business is shaping up for the first quarter of 2002, Pedone said. He noted that corporate group business is picking up again.

Kellogg reports that the business numbers are looking better for the first quarter of 2002, while Hortobagyi said some travel industry people expect a recovery in Santa Monica next summer.

Baltin forecasts that Santa Monica’s hotel occupancy rate in 2002 will be flat with 2001 at about 70 percent, while room rates will be down slightly or even with 2001.

As Baltin noted, Santa Monica has been one of the strongest hotel markets in Los Angeles County in recent years. Indeed, Santa Monica had a “hugely successful 2000,” Kerns said, which makes the current situation all the more painful in contrast.

“It’s been very humbling for Santa Monica,’ Kerns said. “We’ve got to do some reinvestment in tourism.”

Some hotels have changed their marketing approach in the face of the soft economy and Sept. 11 attacks. “It has caused us to get a lot more competitive in rates,” Pedone said, noting that the Fairmont Miramar now competes not only with luxury hotels but with middle market properties.

One of the toughest challenges for tourism officials, Kerns said, will be deciding which international markets to target in the long term. The United Kingdom, which is Santa Monica’s biggest source of international visitors, likely will continue high on the list. Already, Kerns said, there are signs of recovery.

Santa Monica needs international travelers because they spent an estimated $523 million in the city in 2000.

As Hortobagyi said, downtown Santa Monica businesses need people with the free spending “tourist mentality.”