Chae Blog

The following letter was sent to the members of Korean American Hotel Association (www.koaha.org) on December 19, 2011.  I am the current President.

Dear Members:

2011 flew by, and it is almost Christmas already.  In spite of the rosy forecast made by the economists last year, we only saw a modest increase in our Revpar this year.   The “experts” were predicting a 6 to 8% increase, but I believe most of us saw an increase of 1 to 3% only.  Some members have told me that 2011 was worse than 2010.   The first quarter was strong, and it felt like we were on our way to fast recovery.   We saw a gradual decline during the second quarter, and the beginning of the third quarter was the absolute worst.  Coincidentally, and understandably so, we saw the biggest slowness during the time our Congress was deadlocked over the debt limit argument.  Every time we had a political crisis, our economy stalled.  As far as I know, our politicians are supposed to help us, not hurt us, but  the senseless partisanship in Washington has definitely made our business climate much more difficult than it had to be.  September, October, and November were better.  The business after Thanksgiving has been slower than expected, maybe because of  all the money the consumers are spending shopping at department stores.  

 I do believe the U.S. economy is on a rebound.  The recovery pace will continue to be slow, but surer.  In 2012, we should see a gradual, but a bit higher, increase in our Revpar.  Occupancy should increase by 3, 4% at a minimum, with the ADR up by 2, 3%.  The unemployment rate is dropping.  The auto industry is roaring back.  The consumer spending is up.  The banking industry still has many problems, but it seems to be crawling itself out of the hole it created itself.   The lending criteria will remain stringent, but, by 2013, banks will resume lending in a normal and un-afraid manner.  After all, banks cannot live on interest payments only; they must lend to become profitable.  When one or two banks start making a killing lending to qualified borrowers, the others will follow; it is only a matter of time.  With higher income and easier lending, our property values will start to go up again.

Although the economists tell us that the recession was over two years ago, to many of us, the recession is still with us; it has lasted over three years now.  Some of our members did not survive and are no longer in the hotel business.   Those of us who are still around must face a few more months of winter.  However, I am confident that, if we have survived this long, we can survive a few more months.  2012 will be better, and 2013 will be even better.  No matter who our President  will be next time around, I believe our business will continue to improve from here on.  America has proven to be incredibly resilient and strong.  We, too, have discovered that we can be extremely resourceful and efficient when we are challenged.  We are stronger, leaner,  and better prepared for the future.  There is no substitute for hard work, and our hard work has made us better owners.  You never want to waste a good crisis, and we haven’t.  We all should be proud of our accomplishments. 

 We will have our first national convention in late September in L.A. Koreatown.  We have signed up more than 10 Preferred Vendors and two industry partners so far, and more are making inquiries.  We are also working on an MOU with the Korean Tour Hotels Association, which may include exchanges of employees, officer visits, and a mutual discount program.   Thanks to our many dedicated members, the association has come a long way since the inception in June, but we need to do more and be more.   Our membership now totals over 200.   Strength comes in numbers, so we must  sign up more new members.  If one existing member signs up one new member in 2012, we will be 400 strong.  Simple.  Also, please visit our website, www.koaha.org as often as possible.  Use our Preferred Vendors, whenever possible.  Your help and participation are a must for our success.

Thank you for your support, and all of us at Koaha wish you good health and a very profitable New Year.

By now, all of you know that S&P downgraded the credit rating of the U.S. government. What impact the downgrade will have on our fragile economy is yet to be seen and analyzed, but one thing is for certain. We deserved it. Do you really think anyone sane considers our government  responsible and mature enough to do what is necessary to balance our budget? Especially after the whole political farce involving the debt limit increase? The blame game has begun.  The Republican party was quick to criticize the Obama  administration for this downgrade. Now, I am no fan of this administration, but do you think this mess was all Obama’s doing? We have been spending beyond of our means for a long, long time, and it has finally caught up with us. The financial crisis of 2008 only made us face the brutal reality a few years sooner. We can’t run up our credit cards and spend and spend; eventually, we will have to change our behavior, make some money to pay off the debt, or go bankrupt. The U.S. government is no exception to this simple rule. We must cut government spending, raise taxes (these increases don’t have to be permanent), implement necessary reforms in our tax and financial laws, and introduce legislation to promote corporate and business spending. The government should spend less, and our businesses should spend more. That will be the path to balancing our budget within this decade. Next, we need to change our government leaders. Every one of them. There is a serious vacuum in our political leadership. What we have is not an economic crisis; it really is a political crisis. What are these guys thinking? We know what we have to do, and we just have to do it – regardless of political consequences. Do the right thing. We need a hero. Obama sadly, I don’t think, is that hero. As smart as he is, he lacks the leadership and audacity to do the heavylifting. Forget the re-election and do what must be done to save the ship. Why are you concerned about running the ship for four more years when your ship is on fire? Put out the fire first! Of course, looking at the current crop of the Republican candidates, Obama has very little to worry anyway. Mitt Romney, John Huntsman, Michele Bachmann, and who else is running? Do you really think any of these guys is qualified or has the political will or courage to change the course of this nation? Where is Hillary when we need her?! The Treasury Department, upon hearing of the downgrade, dismissed the downgrade as a two trillion error on the part of S&P. I think the Treasury Department should be labeled as a two trillion error. What have you done with our two trillion dollars of TARP money? Sure, it saved our auto manufacturers, but not much else.  Basically, many banks and wall street brokers made a killing using our tax money.   Again.  It is amazing how dysfunctional our government is. Our current Congress and government do not have enough leaders courageous enough to implement the necessary reforms. Whether Obama is re-elected or some Republican candidate gets lucky, I am pretty sure we will still have this political deadlock and childish rhetoric.  83% of Americans are dissatisfied with Congress and the current administration. It’s time to vote every one of these jokers out of the office and start new.  I have had enough of  political posturing and bickering; let’s do something.

O.k., the numbers are in for the first half of 2011. I am doing about the same. 2009 and 2010 were horrible years, and we are doing about the same as 2010. Under most circumstances, doing about the same is not bad. In 2011, doing about the same is not good. After three years of recession, we should be doing better. Except for the top 25 metropolitan markets, every hotel out there seems to be suffering from the same funk. Overall, our ADR is slightly up, but our occupancy is actually down. Our occupancy was better during the first quarter, but we started seeing a decline in our demand beginning April. Most definitely, fewer people are traveling in May, June, and July. First quarter GDP showed only a 1.8% increase; the economists were predicting over 3%. Housing-price declines have amped up, consumer spending is at six-month lows, and unemployment rate has gone back up to 9.2%. Corporations are sitting on $2 trillion,but show no signs wanting to spend it here in the U.S. Meanwhile, our politicians are squawking about balancing our budget without making any sacrifices. How can you balance your budget without raising taxes (Republicans) and reducing entitlements (Democrats)? If I have a huge debt, I can’t possibly pay it down or pay it off without making more money and reducing our spending at the same time. How can our government be an exception to this very simple rule? Until our so-called leaders get off their ass and do what’s right for the country (not what’s right for them or their parties), we will never get out of this jam. Those politicians must think all of us are stupid. Are we in a Double Dip? Not yet, I don’t think, but we can head straight into it, if our government does not agree to take the radical steps necessary to balance our budget.  We have a national debt of more than $14 trillion.  In addition, state and local governments owe $3 trillion in debt and $1 trillion or more in pension systems.  Something’s gotta give, right?  Consumer confidence is everthing in today’s economy. When we and the rest of the world believe that our future is brighter than our past, then we can dig ourselves out of this Great Recession. Look at Greece. We are better than Greece, aren’t we? I believe the outlook for our hotel industry is still positive. Demand is increasing, albeit very slowly, but, most important, supply is limited. There aren’t a lot of new construction projects, and the existing hotels will be benefitted by this temporary reprieve. Everyone says the second half will be better. Of course, we have been saying that for three years now. I, too, think the second half will be better.  It has to.  If we can survive this temporary slowdown, the next few years will be indeed very good for hoteliers.  My good friend, the late Norm Maleng, who served as King County Prosecutor for almost 30 years, was an avid Mariners fan. Every year Mariners would disappoint, and every year, Norm would hope.  He used to say, “Hope springs eternal optimism”. I guess we need that thinking more than ever. Whether our politicians will do the right thing or not, whether our corporations will help or not, whether we are in a dip or not, we cannot lose our hope.  We must believe our future will be better.  Without such hope, we are all sitting ducks.

We are almost done with the first four months of 2011.  I am really not sure what to say about the first quarter.  The industry  experts were predicting a robust growth in our REVPAR (7 to 8% increase) for 2011, but I haven’t seen anything near that yet.  If anything, the business at  our hotels has remained about the same.   Our hotel in  Washington is about 5% down from 2010, and our hotel in Rio Rancho, New Mexico, is about 5% up.   Our hotel by the Albuquerque airport is down more than 10%.  On the other hand, our hotel in Cathedral City, CA (next to Palm Springs) is doing 25% better.  Except for certain major cities, I think it’s safe to say nobody is doing that much better so far.  Most of my friends who own restaurants and hotels in WA have told me the same thing: Their business is worse than 2010. 

Economists generally do not see the world the people are experiencing it.  That disconnect seems especially pronounced  now.  We are supposedly on a nice recovery, but we are not feeling the love.  The economy did falter in the first quarter.  Growth in personal consumption, thanks to high gas prices, slowed.  Economic growth slowed from an annual growth rate of 3.1% in the fourth quarter of 2010 to 1.8% in the first quarter of 2011.  I just hope this slowdown is temporary.  I do believe the long term prospect of our economy is sound.  I just wonder how long we must suffer before the Happy Days are with us.   The hospitality business is especially susceptible to the whims of economy.  When gas prices go up, when consumers must pay more for the basics, that leaves less for discretionary spending, like travels and eating out.  April was slower than expected.  Inflationary pressures, I believe, are affecting the lifestyles of everyday consumers, including their travel plans.   It is critical to every hotelier out there to have a good summer to catch up with bills and to save for the coming winter.   Every indication is that we are going to have a decent summer.  Maybe the killing of Bin Laden will help spur some economic growth.  Who knows?  I still believe the rest of 2011 will be better than the first quarter, but nothing is for sure.  One thing is for sure, however.  We are living in one very unpredictable world right now.

Gas price is going up.  There is no news there.  Food price is going up.  Commodity prices (coal, natural gas, etc.) are going up like crazy.  The coal price went up by 20% since last year.  The supply disruptions in Australia and Indonesia are fanning the coal price here.   Natural gas is up by 20% since November 2010.   Cotton price has gone up dramatically.  The average price per pound is now $2.30 from $0.85 last March.  I am sure you have noticed the increases in your kids’  clothing price.  Even prices are rising for basics like diapers, wipes, and trash bags.  Hotel linen prices went up by 25% as of April 1.   Some companies are reducing the contents of packages rather than raising their price tags.  The nation’s unemployment rate is still very high, and there is no visible sign that wages are increasing to partially pay for the increases in our living cost.   China, India, and Brazil are consuming more oil, more food, and basically more of everything than ever before.  Higher demand means higher prices, Econ 101.   Of course, a weak dollar inflames inflation in a big way also.  The dollar today is lower than at any time since major currencies began floating in 1973.  It is 13% lower than it was 30 years ago and 28% below its 2002 peak.  A weaker dollar makes America poorer and makes everything expensive.  So, what the hell are we going to do?  Something has to give, right? 

Asian and European countries have been paying $6 to 8 for a gallon of gas for years.   Fortunately, we are not there yet.  However, gone will be the days of cheap gas.  We will have to drive better gas-mileage cars and drive less.  Even with the recent increases, U.S. food price is the lowest in the world.  After all, we export more agricultural products than any country in the world.   In another words, we may have to pay more, but at least we will never run out of food.  As our food prices continue to climb, we just have to eat less and smarter.  Eating less is good for us anyway.  I’ve heard that we can feed the whole African continent with the food we waste.   We gotta buy our coffee at Trader Joe’s, instead of Starbuck’s.  We ought to cut our cable service and watch the internet TV.  Yes, inflation is here, and it’s here to stay.  Chinese, Brazilians, and Indians are not going to stop eating or driving for our sake.  What did we do during the Great Recession?  We adapted.  We made our work force leaner and became smarter with our expenses.  What are we going to do with higher prices?  We eat less, drive less, and make smarter purchases.   Yes, it’s easier said than done, but then do we have any choice?   Trust me, I know the feeling.  I have a big SUV that gives me 14 miles per gallon.  Every time I have to fill up, I wish I had a Hyundai.  I am trying to drive less, but it’s not easy.  The public transportation is lousy in our state.  When we buy our next car, it will be a very small car, I guarantee.  Meanwhile, I just have to drive less.  The Land of Plenty must become the Land of Thrift.   We must change the way of our thinking in how we live and how we conduct our business.  We either adapt, or we perish.  Remember, it’s not the strongest that survives the evolution; it’s the one that adapts fastest.   Our struggle continues..

For the U.S. lodging industry, 2010 was better than 2009, ever so slightly. The ADR stayed pretty much flat, while the occupancy during the downturn edged up because of the low rates. Deals were aplenty, and the consumers benefited mightily. The ADR for the luxury chains decreased by 10% in 2009 and increased by 1% in 2010. This means a high end room which cost $159 in September 2008 and $135 in September 2009, costed $139 in September 2010. The rate increases for the midscale chains were minimal, and, for the economy segment, non-existent.  The rates have stopped sliding, and we can expect a much better year now. According to the market research conducted by MarcusMillichap, in 2011, the ADR will increase by 4.2%, the occupancy, 2.4%, and the Revpar, 6.8%. That is a healthy increase anyway you look at it.
There is optimism in the air. The unemployment rate is going down, which means employers are hiring. Job creation and increased economic activities will translate into more business and vacation travels. When people feel better about themselves, they travel and eat out.  More meetings and conventions will be scheduled, as corporate and association budgets grow.  One sector that won’t be recovering any time soon will be the government travel. Governments at all levels have severe budget deficits and will discourage any discretionary travel. Any government meetings or conferences which must be held will be held at home.  As the world economy recovers at the same time, we will see more international travelers as well, especially from Asia.
Up and through 2010, low rates and high occupancy were name of the game. You fill your rooms at any cost. Survive at any cost. In 2011, a more focus on demand generation and revenue management will be in vogue. Desperate times called for desperate measures, and all of us resorted to cut-throat rates just to survive. Low rates are still prevalent, but not as much. As demand grows, most hoteliers will be less willing to deal and offer low rates. By 2012, I predict a 4 to 5% increase in ADR, 5% increase in occupancy, thus resulting in another healthy 8 to 9% increase in Revpar. There are new hotels being built, but the demand will surpass the supply, and the lodging industry should enjoy an upward trend for the next five years.  The worst is over.   I think.

There was an article in Time magazine recently, titled “The Rise of the Sheconomy, How women are using their rapidly increasing spending power to impel changes in the way companies operate”. Here are some interesting facts:
1. Women make 85% of the buying decisions or are the chief purchasing officers of their households.
2. In October 2009, the U.S. workforce became nearly half female: women held 49.9% of all nonfarm labor jobs and 51.5% of high paying mangement and professional positions.
3. For every two guys who graduate from college or get a higher degree, three women do.
4. As the U.S. continues its migration from a manufacturing economy to a knowledge-based one, women are poised to snag more jobs.
5. Childless city-dwelling single women makes 8% more than their male counterparts.
Everyone knows, or has long suspected, that the purse strings are held by women. Maddy Dychtwald observes in Influence, one of her three books on the subject of female economic empowerment, that “We’re on the brink of a massive power shift. It’s a world where women can, if they choose, seize the reins of economic control.”

If this is the reality that we live in, and it is, how we as hotels lure the female dollar is a question that merits serious discussion. Guys are targeted shoppers, says Marti Barletta, author of three books about marketing to women. A guy will book the first hotel room he finds at his price point. For a woman, the secondary characteristics are key: the gym, the spa, the sustainability, the thread count, etc. Get the guy right and you’ve made a sale; get the woman right and you have a customer. Barletta asserts to appeal to women, the changes in a product or service or even the way a company is run have to be more profound.

And women have a weapon they haven’t had before: online social networks. Of the more than 500 million people on Facebook, women do 62% of the sharing. These online networks can be a blessing or a bloodbath depending on how we performed.

Our hotels emphasize sustainability. Our linens have improved. Our rooms have changed to feel more like a home. We are serving better coffee. But, is that enough? I think not. What more can we do to lure the female dollar? How can we as hotels become more female friendly? The fundamental paradigm of marketing is changing. We must recognize this shift and change our tactics accordingly, if we are to survive and flourish in this new economy.

In 2009, most hotels experienced a 20% drop in the room revenue and a 33.7% decline in NOI (Net Operating Income). The first six months of 2010 have shown some signs of improvement in certain parts of the country. Generally speaking, hotels located in the primary market (downtown) appear to be doing better than 2009, and the hotels in the tertiary market seem to be doing worse.  The ADR (average daily room rate) has stopped sliding, and the occupancy seems to be holding steady, thus helping the REVPAR (revenue per room) to increase ever so slightly. For 2011, most experts are predicting a REVPAR increase of 7.5%, which is tremendous. As difficult as the last two years have been for the hoteliers, it’s hard to imagine an up year where you can actually make some money.

I have a hotel in the Palm Springs area. Palm Springs is one of the hardest hit resort towns in this recession, along with Vegas, San Diego, Miami, and Phoenix.  I have been losing tons of money since September 2008.  The rates are still very low.  Most hotels are still advertising rates that are 20 to 30% lower than pre-recession. For groups, 50% off rack rate is not uncommon. The rate war is blatantly continuing on, and it’s all about filling empty rooms – no matter what.  Low occupancy leads to lower ADR, and worse becomes worse.  A 7.5% increase in revenue next year will be a great gift .   

I do believe the group and transient business segment is growing. The transient leisure segment, on the other hand, is showing weakness and cannot be counted on. Tour buses and sport teams are traveling, and I believe their demand will increase even more in 2011.  A focus on this group and transient business segment will be a must if one wants to have a good 2011.   Americans are saving more and are eating out less and traveling less.  Frugality is the name of the game.  What can I get for my $69 per night?  Do you have a hot breakfast?  How come you don’t have scrambled eggs and bacons like the hotel next door?   Can you blame the guest?   Ruthless competition has ensured the today’s guest receives the best service and price possible.   The outlook for 2011 appears positive, however.  The occupancy should rise, the ADR should increase, and the stringent cost control that has been in place for two years now will help the bottom line.  As long as we don’t have another slowdown, we should have a very profitable year in 2011. Of course, that’s not much of a prediction, is it?

I don’t like where America is heading.  I understand why the folks in Arizona are frustrated and have come up with a law that checks the immigration status of anyone pulled over.  I personally think the letter of the law is not harmful, but the spirit of the law is.  The Arizona Governor and the politicians supporting this legislation have been very mean-spirited and disrespectful toward Mexicans.  No one wants illegal immigrants in this country, but, on the other hand, who will work at our farms, motels, and restaurants, if not our neighbors from Mexico?  The proponents argue that these illegal Mexicans take away our jobs.  I assure you that they are not.  They are washing dishes, cleaning rooms, and picking strawberries for a few bucks an hour; no American will work that hard for that little.   The proponents argue that these illegal immigrants are dangerous criminals.   I assure you that, if I am a dangerous, illegal criminal from Mexico, the last thing I will be doing is speeding on an American freeway.  This law won’t help Arizona catch bad criminals from Mexico; a tougher border enforcement will.  

Many national groups canceled their conventions in Phoenix because of this law.  I heard Phoenix will lose $50,000,000 in convention revenue over the next five years.  I know many Asian tour buses going to Grand Canyon have been canceled this year because of this law.  Many Mexicans and other minorities, illegal and legal, have moved away to New Mexico and CA.  Soon, Arizona will have legal white Americans only, but a broken economy.  If that’s what Arizona wants, I guess that’s o.k. with me.  I will just have to make sure to drive around Arizona.

Texas and a few other states are thinking about enacting a similar law.  The Tea Party movement openly ridicules Obama’s origin.  69% of Americans disapprove the building of a mosque near Ground Zero.  Why not?  Why can Muslims build their church there?  Timothy McVeigh was a Christian.  Did we protest the building of any church near the Oklahoma bombing site?   9/11 was not the action of Islam and Muslims.  It was the cowardly action of a few radicals called Al Quada who happened to be Muslims.   Why are we condemning the entire religion?   Muslim Americans are as much American as Christians, Jews, or Mormons.  This growing hatred of Islam and Muslims and whatever that’s not mainstream or Christian is too much.  There is too much hatred, too much bigotry, and too much partisanship.  What kind of a country is this?  Didn’t Jesus preach love?  Wasn’t America founded on ideals of religious freedom and tolerance?  A mosque will dishonor the fallen, but strip clubs, liquor stores that are in the same neighborhood will not?  I really thought Obama’s presidency will bring people together, but for some reason we as a nation are growing apart.  I can’t explain why.  All I can say is that I am sure glad it wasn’t some Asian fanatics who committed the 9/11 attacks.  I’d be looking for another country to reside.