Are Bargains at the St. Regis Cause for Optimism?

By Kris Hudson

Don’t cancel that spa appointment just yet: Luxury hotel stays are coming back this year.

Or so say some of the largest U.S. owners and operators of luxury hotels.

“Rumors of the demise of luxury are greatly exaggerated,” said Frits van Paasschen, president and chief executive of hotel operator Starwood Hotels & Resorts Worldwide Inc., at a Dallas convention of meeting planners on Wednesday. Starwood has its brands, including the luxury St. Regis and hip “W”, on 942 hotels globally.

Mr. van Paasschen and colleague Minaz Abji, executive vice president of hotel owner Host Hotels & Resorts Inc., mused during a panel discussion at the Professional Convention Management Association’s conference that travelers and convention goers will pounce on the bargains now available at posh properties.

“I think you’re going to see luxury pop in 2010,” said Mr. Abji, whose company owns 112 hotels as a real estate investment trust. “The booking pace for ’11 and ’12 is holding up very well.”

The recession roughed up the entire U.S. hotel industry. But no segment suffered as much as luxury hotels. From 2007 to 2009, occupancy in U.S. luxury hotels declined by 10.4 percentage points to 62.2%, according to Smith Travel Research. It would have fallen further if luxury hoteliers hadn’t dropped their average rates by 16.4% in the same span to $241.

Now, the market is primed for savvy travelers to trade up. “There is affordability today for luxury that there never was before,” Mr. Abji said after the panel discussion. “Leisure (travelers) are going to take advantage of that, and business leisure (guests) will, too.”

Such a rebound can’t come quickly enough for the luxury segment, where many owners are having difficulty paying their properties’ mortgages. Hospitality research company PKF Consulting Corp. predicts luxury-hotel occupancy in the U.S. will rise by 3.8 percentage points this year to 65.7%, then by 0.6 percentage points in 2011.

Some of that occupancy rebound can be attributed to low rates that will slip lower this year. PKF foresees average rates at U.S. luxury hotels declining by 1.9% this year to $237. In 2011, luxury rates will rise by 2%, PKF says.

Still, experts such as Bjorn Hanson, an associate professor of hospitality at New York University, predict it will take seven to 10 years for luxury hotels to again post the occupancy and rates they boasted at the market’s peak in 2007.