So what does the second half of 2008 have in store for the global hotel business? HOTELS interviewed industry leaders to get their insights—some on the record and more off the record, as they don’t want to be quoted as the bearer of any bad news. In general, there is still more optimism than not and the most recent economic data (mid-May) tends to show that the credit crisis and potential recession in the United States might not be as deep as some worried. How that impacts hotel performance, operational issues and development going forward is the subject of this article.

“There is no doubt we are in a downward cycle in the United States and Europe,” says Alex Kyriakidis, managing partner, Deloitte, London. “The difference this time is that consumer demand for travel is being aided by the emerging markets of India, China, Russia and the low-cost airlines, which continue to grow despite the price of fuel. There will be some pain, but it will not cripple the industry and I do not anticipate any significant layoffs as a result.”

Industry experts predict softness to continue in the U.S. market into next year, with modest impact on results. America is on sale and Europeans are coming to cities like New York, paying a lower rate—but at least the hotels are full, says one general manager in The Big Apple. In most markets, occupancy is expected to dip further, yet ADR increases—which have been a savior—are not expected to continually offset the slowdown. As a result, PKF Consulting’s Bob Eaton still projects 3% RevPAR growth for 2008.

Operators such as Kor Hotel Group, Los Angeles, benefit from operating in markets that draw international guests. “The purchasing power from overseas has helped greatly to offset an otherwise declining pattern of consumer spending within the U.S.,” says Luis Fernandes, executive vice president of operations. “We anticipate experiencing part of the overall decline, but at a lesser rate than our traditional competitors.”

Chip Conley, CEO of Joie de Vivre Hospitality, San Francisco, says his hotels are showing positive year-over-year RevPAR growth (2.3%), despite the slumping residential market throughout the state. He says some areas like San Francisco (where nearly half of Joie de Vivre’s hotels are located) are up by double-digit RevPAR growth and the second half of the year looks strong. He adds that southern California is softer but still is showing 2% to 5% growth for the second half of the year.

Other operators in the U.S. are reporting more sobering data. One hotelier in Washington, D.C., says the first half has been less than stellar with full year revenues expected to be 2.5% behind 2007. However, flow-throughs have been outstanding with serious attention being paid to scheduling and food costs.

Robert Habeeb, president of First Hospitality Group, Rosemont, Illinois, says hotel performance across the portfolio was weaker than expected in the first quarter. But he says advance bookings for the second half of the year look stronger. “Moving into third quarter we are seeing poor late pickup in most markets other than the Chicago CBD,” Habeeb says. “This causes concern as it might be a signal of weaker than expected leisure travel, which is traditionally strongest in the summer months, but often a late book.”

Moving to Europe and into the south of France, one hotelier says business is good—slightly below last year’s pace. However, he says, the second half of the year brings some uncertainties, with some months well below average in group business. Corporate business also is soft, so much will depend on individual travelers—when they make their summer bookings and for how long.

Gordon Campbell Gray says his London hotels continue to “hold up” and he expects business to continue to be “strong and stable.”

In Rome, Roberto Wirth of The Hassler says trading is off 5% into May, but he adjusted rates a bit and expects a better second half of the year.

Jean-Gabriel Peres, CEO of Mövenpick Hotels & Resorts, Glattbrugg, Switzerland, says with the exception of a few destinations (Prague), nearly all markets still show strong performance. “We are cautious and anticipate a softening of demand of corporate business in most of our business and city hotels from September onward,” he adds.

In the booming GCC states of the Middle East, occupancy in some cities is running above 90%, according to Guy Wilkinson, a partner with Viability Management Consultants, Dubai. He says average rates in Dubai went up by 25% in some 5-star hotels last year and continue to shoot up.

In Africa, Christian Grage, vice president of operations for Mövenpick Hotels & Resorts, Cairo, says his hotels are performing well above last year’s levels, and he expects the trend to remain positive as the continent moves toward the World Cup in 2010.

The impact of any serious U.S. recession would take six months-plus to become seriously evident in Asia hotels, according to Kevin Murphy, managing director, Asiawide Hospitality Solutions, Hong Kong. “It is clear that those with major U.S. commercial account business are seeing first a softening in length of stay and now some moderate curtailment in numbers traveling from the U.S.,” Murphy says. In addition, MICE business from the U.S. is no longer a major source of such business prospects in Asia, as Europe and the Mideast are seen as growth markets in that segment.

So far, Asia regional hotel performance has not been affected by any macro-economic conditions, according to Robert Hecker of Horwath HTL, Singapore. “Certain markets are down on RevPAR due to oversupply and primarily on the occupancy side, such as Beijing and Shanghai in the build up to the Olympics, but others are recording record-high RevPARs (Hong Kong, Singapore, Saigon/Hanoi),” he says. “We expect the second half to remain relatively strong, other than the further supply impacts in China.”

Giovanni Angelini, president and CEO of Shangri-La Hotels & Resorts, Hong Kong, says, “Due to our strength here, our yields year-on-year have grown by around 10%, and this is also expected for year-end.”

China has become an interesting story due to the pending Olympic Games. “The government over-control is adversely affecting visitor interest,” says Christopher Bachran, Bachran & Associates, Shanghai. He says visas are harder to get, and while this does not affect the Olympic enthusiast, it does impact others wanting to travel for non-Olympic reasons—primarily in the business sector.

Bachran adds that high prices are off-putting for inbound operators, and he believes tour travel and conference business outside of Beijing will drop. “With the higher ground prices, many companies and tour groups will wait until post-Olympics or look at alternate destinations,” he says.

Direct comments to: jweinstein@reedbusiness.com