That would be the fifth-largest drop in revenue per available room since 1930. The largest recent drop was in 2001, when the measurement slipped 10.3%.
Most of the reasons revenue is slipping are obvious. Corporations under financial siege are cutting back on travel expenses when they can, reducing the number of trips their employees take and often putting them in cheaper hotels when they do travel. Companies are also axing group events such as out-of-town sales meetings and seminars that are usually a reliable source of income for hotels.
This is in part to cut costs but also to avoid looking wasteful or frivolous, said hotel investment banker Donald Wise of Johnson Capital. When word got out that AIG Inc. senior executives had attended a $440,000 company retreat in September at the St. Regis Monarch Beach, they were pummeled by critics because the event was days after AIG had received an $85-billion bailout from taxpayers.
The public outrage directed at AIG caught the attention of other business leaders, many of whom had grown accustomed to fine travel experiences at company expense, Wise said.
"Corporate America somehow woke up to the fact they have shareholders," he said. "Suddenly there was an awareness that in bad times you shouldn't be spending money like that."
Even five-star hotels are feeling the sting, Wise said. "The Four Seasons, Ritz-Carltons and St. Regises of the world have had tremendous cancellations."
As their incomes fall, hotel owners will respond by laying off staff and cutting other costs that might include some guest services and amenities, PKF analysts said. Empty rooms help reduce operating expenses because they don't need daily services, but there is also a limit to how many dark rooms hotels can financially tolerate before the lack of income becomes crushing.
During the first three quarters of 2008, hotels tried to hold the line on room prices, analysts said. Then many got nervous and started reducing rates, even though it might not be in their best long-term interests. Studies have shown that discounting rooms just to get them occupied doesn't necessarily improve the bottom line after expenses are figured in, and raising rates again later can put off return customers.
"By and large, hoteliers have given in and are trying to compete on rate, which will create a downward rate spiral," attorney Butler said. "That will mean significant pain for a lot of people in the hotel industry."
Many hotels traded hands during the boom years and, like many homes, are no longer worth as much as their outstanding mortgage debt. Some hotels may be worth half of what their owners paid two years ago.
"It's scary," Butler said. "Some owners will lose their hotels."
There will be bankruptcies, distressed property sales and loan renegotiations with banks, he said, but not as many as there were in the recession of the early 1990s.
The Bonaventure's top executive, Peter Zen, acknowledged that tourist travel had slipped but said he expected conventions booked long ago to be held this year, even if not as many people show up as originally planned. Bread-and-butter business travel, however, is "way down," he said.
"You used to have people traveling to do deals. Now there are no deals to be done," he said. "It's going to be a tough year."
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roger.vincent@latimes.com
