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Thoughts on Randy Smith Interviews - Part I

Mike M.
Posted by Mike M. on January 29, 2020

One of the elder statesman of the industry has put out two short video clips with some great perspectives on the industry.  Like many of you, I have heard Randy speak many times.  Between his sharp intellect, his years, of experience and his role as the 'godfather of data' for the hotel industry, he always has an interesting perspective.

I will note some highlights from Randy as well as some questions that I would ask him or my own thoughts in the next two postings.

There is a different pattern to this downturn vs. previous downturns.

  • Historically, there has been a lag between what happens in the overall economy and the hotel industry (typically the hotel industry peaks well after the general economy has peaked and the hotel industry recovers  a bit later than the general economy).  This time that has not happened.  The downturn in hotels has pretty much happened at the same time as the downturn in the overall economy.
  • A very important question that Randy does not answer is if this means the recovery for hotels will also happen at the same time or will there be a lag.

Supply growth is going to be a HUGE issue for the industry this year.

  • People were feeling good throughout a lot of 2008 and that lead to a lot of hotels being started.  Those hotels are coming online this year.
  • The really bad thing about this supply growth is that most of it is front loaded this year.  This means that while there may not be a lot more supply growth than last year, but it will have a much bigger impact on trading conditions because the industry will have to carry the rooms the entire year.

Hotel Financing

  • Randy does not expect the hotel financing environment to open up until there is a clear and tangible support showing that there is a recovery well under way.
  • He expects that will be well into 2010
  • A point Randy does not make but is very important is about the impact of all of this on the recovery.  If he is right about the lending markets staying tight, then the construction that usually starts to perk up early in the cycle to test the market will not be there for this next recovery.  This will be a huge boon for that eventual recovery since it means that supply growth is likely going to be very delayed.

Randy's Advice

  • Avoid debt, control costs aggressively,  and conserve cash.  The key is not to put yourself in a position to weather the downturn since that's what you've got to do - weather it.
  • Randy notes that 2009 is going to be tough with a challenging economy and a lot of new hotel supply opening.  He says the recovery could be anywhere from 1-3 years away.
  • In spite of all of this, he is optimistic.  He notes that the industry has always been very creative and innovative.  He says that new products come out all the time to help the industry cope, and he expects the same thing to happen this time (place for a shameless plug for Hotel Effectiveness ?)