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COVER
STORY - May
2001 by Lisa Summers Sidebar- Kentucky has more than 1,000 lodging facilities located across the state and some hotel owners and managers say that may be too many. “I would not classify this as a really healthy industry,” said D. Ray Gillespie, executive director of the Kentucky Hotel and Motel Association, Inc. Gillespie said the lodging industry may have overbuilt during the past few years, leading to lower occupancy rates overall. The statewide occupancy rate for all lodging facilities in the year 2000 was 54.2 percent, according to Barbara Atwood, research manager for the Kentucky Department of Travel. The 1998 statewide occupancy rate was 55.2 percent. Those rates place Kentucky nearly eight to 10 percentage points below the national average, noted Atwood. “I think there are too many properties right now for the demand,” she said. “In the last six to eight years there has been a huge growth of limited service properties.” The total number of facilities in 2000 was placed at 1,092 with the total number of rooms at nearly 60,000. The majority of Kentucky establishments have less than 24 rooms with the next largest segment having between 50 and 99 rooms. Low occupancy rates combined with a tight labor market and increasing utility costs have left some establishments struggling. The Drawbridge Inn and Convention Center in Fort Mitchell is feeling the effects of increased competition, according to Jim Willman, vice president of operations. Drawbridge Inn and Convention Center has close to 500 rooms, three restaurants, three pools, and a 27,000 s.f. meeting and convention space. “We are the largest privately-owned convention facility in Northern Kentucky,” said Willman. His area has seen an explosion in the growth of lodging facilities. As a result, the occupancy rate for his area in Northern Kentucky in January 2001 was only 41 percent, according to Willman. “In Northern Kentucky in 1997 there were 4000-something rooms. Now there’s 7,200 rooms,” explained Willman. “We’ve just overbuilt. And the hospitality industry seems to do that all the time.” Bob Desai, owner of the 145-room Holiday Inn in Owensboro is optimistic about the future. But he too has noticed the effects of increased competition. “Overbuilding is one of the main concerns,” said Desai. “We’ve got three new hotels that came in about a year ago.” Still, Desai’s business is healthy, with occupancy rates averaging nearly 70 percent for much of the late 1990s. In 2000, Desai said the rate dropped to nearly 50 percent, in part because of a decrease in convention business in the area and the addition of new hotels. The Lexington area has not been immune from overbuilding. Gerry VanderMeer, general manager of Hilton Suites Lexington Green said the biggest challenge as an industry has been the abundance of new hotels in 1998 and 1999. “In the past five years, there’s been over 1,000 new rooms (in the Lexington area) – a 15 percent increase,” said VanderMeer. “Yet room demand has not kept pace with this growth. In other words, our occupancies have experienced a decrease or flat growth.” Hilton Suites Lexington Green is a full-service hotel with 174 suites. It caters to a corporate clientele but has a large leisure crowd on the weekends. VanderMeer said his hotel has a 78 percent occupancy rate on average but did experience a dip in the mid-1990s. “Our average rate has grown very minimally because of the increased competition and the number of hotels in the market,” said VanderMeer. VanderMeer is optimistic about his hotel’s future. He cites a good location and name recognition as two of its best selling points. Beyond that, he is hopeful that planned renovation of the Lexington Convention Center will draw large conventions to the area, which benefits all hotels. A multi-million dollar renovation of the center will begin this year as a result of funding by the Kentucky General Assembly and an increase in the hotel lodging tax. “In years where we’ve had seven or eight major conventions, the occupancies in Lexington have gone up well,” said VanderMeer. “All the hotels benefit. It has a wonderful ripple effect.” VanderMeer’s establishment, like the Drawbridge Inn, has noticed the effects of the downturn in the economy. “The big corporate meetings, they’re cutting back because of budget cuts,” said Willman. “The summer is yet to be here, but it’s a little scary. We’re usually the first to be hit when the economy starts getting a little rough.” When businesses cut expenses, they sometimes send their employees to lower-cost hotels that do not offer full services such as on-site restaurants. That has been where much of the new growth in the industry has occurred. The trend is toward economy-style hotels with fewer than 70 rooms and no food service. “That’s been the new construction,” said Gillespie. “At the present time, there’s probably more than 1,000 hotels in the state. And close to half of them probably have 40 rooms or less.” Although occupancy rates suffer during times of economic downturn, a perennial problem faced by lodging establishments sometimes eases when the economy slows down and businesses cut back. Staffing often becomes easier. “All businesses are facing the impact of low unemployment,” said VanderMeer. “There are more jobs than employees to fill them and we compete for the best people out there.” VanderMeer said the hotel industry is now offering the best wages in its history and the industry, which relies on good service, aggressively recruits employees. Willman agrees, adding “it’s very, very difficult to find entry level position people.” In fact, the turnover rate for entry level employees is close to 200 percent at his establishment. That rate drops off tremendously for the higher-level positions. The Drawbridge Inn, which employs approximately 400 people, has taken an unusually proactive stance to recruiting employees. Willman said his establishment regularly applies for visas for workers who want to come to America for jobs. “In today’s society, personnel is obviously always paramount,” said Willman. “Finding help two years ago was almost impossible. In the last couple of months, it’s been a little easier. But it’s still going to be tight this summer.” So the Drawbridge Inn began applying for visas for foreign workers in January 2000. “It’s a long, drawn-out process,” said Willman. First, the jobs are advertised locally. If no one applies, then Willman said his business contacts the State Department to seek visas for foreign workers. The INS must approve the employees and their consulates in the country of origin must also agree to the arrangement. Willman said his hotel has approximately 20 foreign students who will work at the Inn on temporary visas this summer. Many of their employees are from Russia or Mexico. Although the challenges facing the lodging industry are complex and tied to the economy, Gillespie said he is hopeful that a recent change to the law regarding transient room tax will benefit the industry. The transient room tax creates funds that are supposed to be earmarked to support tourism in an area. But Gillespie said the tax is often abused at the local level and its proceeds co-mingled with the general fund. During the 2000 General Assembly, a penalty section was added to the transient room tax statute that Gillespie hopes will encourage cities and counties to use the money for its original purpose. “We think that might make a difference,” said Gillespie. “We’ll see. It’s supposed to be an economic development tool and whenever that money is drained away, it defeats the purpose.” Atwood said there are still some areas in Kentucky where building more lodging facilities would be a good business move. But she does not recommend it overall. “They (industry
leaders) need to concentrate on what they already
have,” said Atwood. Lisa Summers is a
staff writer for The Lane Report.
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