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The price point of no return

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Published: December 3, 2008 at 1:02 PM

I posted an update to my Monday blog entry with this link, but after thinking a bit about it, I wanted to give it its own entry.

I'm talking about the Orlando Sentinel story from Monday about hotel occupancy and room rates for the motels along U.S. 192 in Kissimmee, near the southern entrance to Walt Disney World.

The hotels and motels on Walt Disney World's doorstep are worse off now than during the 2001 recession and the travel slump that followed the Sept.11 terrorist attacks.

Only three of every 10 hotel rooms in the west Kissimmee area were occupied on an average night in September. Signs along U.S. Highway192 near Disney's southern entrance advertise rooms for less than $30 a night. Traffic along the six-lane commercial strip is light; parking lots are empty or nearly so.

Even in the flush times of the recent bubble economy, 192 wasn't doing as well as it was in its 1970s heydey, when the Magic Kingdom was the only big theme park in Orlando and everyone entered Disney property from 192. But the numbers in the Sentinel story are chilling to any hotelier.

One might think that occupancy would go up as price goes down. And, to a certain extent, price breaks do help fill rooms. But there comes a price point below which price cuts actually hurt occupancy rates.

Think of it this way: Imagine a hotel where the room price was zero. You wouldn't find an infinite number of families clamoring the stay there. No, a hotel where every bed is free isn't a resort destination - it's a homeless shelter. Most folks won't want to stay there. (Indeed, the Sentinel story mentions that some hotels are now renting not to tourists, but to long-term boarders. That's not a good sign for the neighborhood's health as a tourist destination.)

When prices get too low, people stop thinking "bargain" and start thinking "sketchy neighborhood." Empty parking lots around cut-rate hotels reinforce the perception, leading to fewer bookings, then to lower prices, then to fewer bookings, then to lower prices... then to homeless shelters.

Simply, the Orlando area, including U.S. 192, has too many hotel rooms for current demand, in this economy. And this is the way that the market eliminates them, by pricing them into oblivion.

Still, if you don't care about the neighborhood and simply are looking to score a dirt-cheap room, there are many bargains to be had on the way down.

Thoughts?

Readers' Opinions

From Don Neal on December 3, 2008 at 1:19 PM
Sweet, now if only airfare to Orlando will drop to $30 we'll be in business! :D
From Reid Loveland on December 3, 2008 at 1:31 PM
It's time to begin bulldozing all those tacky, sleazy motels along 192. If they can't fill the rooms then when they close their doors, knock them down and put grass and/or landscaping there. It can only improve that stretch of roadway.
From Brandon Mendoza on December 3, 2008 at 5:55 PM
I can see how it's a downward spiral if the prices get too low. Personally, I'm guilty of being biased against cheap hotels. Whether it's Vegas, Manhattan, Hawaii, or either American Disney location, cheap hotels and motels always reek of being "seedy" and seem to attract the wrong crowd.

Same with parking structures at airports... the last thing I want to deal with is having my car broken into or scratched and dented just because I wanted to leave my car there for $7 a night. That's an easy way to ruin a wonderful vacation!

Tourist Areas like Florida are hurting so much with the way the American Economy is right now, it's sad. Sure, there must have been too much being built to accommodate the demand when things were good, but there's always a limit to how much can be built.

Over-simplifying the whole thing... Law of Supply and Demand.

From Gareth H on December 3, 2008 at 7:45 PM
The 192 is so long that there really is nothing within walking distance, and for tourists without a car, it can be very expensive to stay there due to the cabs and coaches needed to take you to the resorts.

When I first visited Orlando I was out in a hotel on the 192. I learnt the next time I came that I-Drive was a much better location. There are actually buses (I-Ride, route 8 etc) that can take you to SeaWorld, Wet'N'Wild, outlets etc/ There are also plenty of bars within staggering distance. Something teh 192 lacks.

Staying on I-Drive really eliminates the need for a car if your hotel has park transportation. Shopping, Drinking, even swimming, is just an I-Ride away.

With the Flea Market just north of Kirkman, there is also the elimination of travel to the 192 for those large flea markets that used to be a big draw (Never saw any Fleas for sale!!!!!????!!!!)

Also, the 192 went through a long period of road enhancements (Ha ha ha) that people were put off and started looking at different location, and I-Drive looked good.

Thats not to say I-Drive isn't struggling though.
Plenty of hotels have had ownership changes, name changes, knock downs, re-builds. One big resort was bought, repairs started to sell of some units as Condos, then they suddenly closed "For renovation" and just haven't re-opened.. It was a bed bug infested "@@@@"hole though (I stayed there, 3 rooms, lots of bites and damp)

BUT..... The Hilton family are doing pretty well. THey just aquired one hotel (Which has had a couple of owners in 3 years already) and are building the large hotel next to the convention center!

There are a lot of older units on I-Drive that need some TNT stuck in them, just because of years of neglect. Travelodge and the Days Inn on Sandlake and Universal!!

BOOOOOOM!!!!!

From Derek Potter on December 4, 2008 at 1:02 PM
It really depends on the operator of the hotel. There are certain brands (Holiday Inn, Marriott, Hilton, Hampton, higher end Choice hotels) that have a reputation for decent rooms. Discounts on those would be a bargain. It's the mid or lower end rooms that are already cheaper that will get the kind of scrutiny that Robert is talking about. Personally, I have chains that I will stay at, and chains that I won't, because I've been on the road long enough to stay at them all and know the difference. Chains like Travelodge, Red Roof, Econolodge, and other low priced hotels in Orlando will be highly questioned...not necessarily because they are bad, but because their prices are cheap.

There will come a point though, where prices will be discounted so much, that the higher end hotel's profit margin will be compromised. The question will be this, how low are these corporations with a constant eye on the bottom line willing to go? Are they willing to lose a little money for a while to keep people in the rooms until the economy picks back up? Is Disney prepared to sacrifice a little of that guest experience at the hotels in order to keep them full? All of those hotel shows, restaurants, eye candy, and hotel services cost a lot of money. Can they keep all of those things going while pretty much giving away rooms?

In the end it comes down to this. It doesn't matter how cheap the good rooms are if people don't have the money to go to Orlando. There's a reason why retail, car, and home sales are down despite absolutely massive discounts across the board. Many people simply don't have the money to spend, or are watching what they have because they know what could be coming.

I think that the travel industry as a whole..especially those towns who rely heavily on tourism... should be prepared for a season or two of Darwinian proportion. That is to say, survival of the fittest. Markets will rebound and people will someday spend freely on vacation once again. The road back to that day will be long and hard, and it will get worse before it gets better. The question for those in the tourism business is this. Who wants to survive the most?

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