Hotel Industry Troubles Help Business Travelers

Rates at some hotels have dropped by 30 to 50 percent, while other properties are offering bonus meals, free room nights and more.

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Here's the bad news: The U.S. hotel market is now officially in worse shape than some segments of the American housing market.

Here's the good news: Savvy business travelers can ride the lodging industry's train wreck to substantial savings.

Confirmation of the sorry state of hotel properties came last week from Fitch Ratings, which tracks the delinquency rate of commercial mortgage backed securities. A surge in hotel defaults in September means that the lodging sector now has a higher rate of late pays on mortgages (5.83 percent) than multifamily homes (5.72 percent), retail (3.65 percent), industrial (2.96 percent), or office (1.97 percent) properties. Worse, Fitch says it expects "hotel property values will decline by as much as 50 percent" and believes lodging delinquencies will eventually be "approximately double that of the other property types."

Of course, Fitch didn't tell us traveling business types anything we didn't already know anecdotally. After all, it's impossible not to notice that our nightly hotel tabs have plummeted recently. Depending on our destination and the type of lodging we favor, rates have dropped by 30 to 50 percent and individual properties are courting us with bonus meals, free room nights, and everything from complimentary spa services to insanely rich bonuses in our frequent-guest programs.

Yet buying hotels when things are rotten is often more challenging than when the travel industry is riding high. And the rules of engagement are certainly different. Consider the following a road warrior's guide to getting the best hotel room at the lowest price right now. No one knows for sure what next year or next month—or even next week—will bring.

Less Is, Well, Less

Hotels are slashing their operating budgets as they offer us substantial savings. So watch out for small changes that won't affect the quality of your stay and beware larger ones that could ruin your business trip. No one I know complains when a hotel scrimps on the landscaping a bit or substitutes a pencil for the fancy pen that used to accompany the pad on the nightstand. But a reduction in the hours that room service operates or the closure of the hotel restaurant can foul up your plans. Many hotels are eliminating or reducing concierge staffs or charging for services like in-room Internet that were once free. The bottom line in these bottom-line times: Confirm that the hotel still offers a product or service you expect it to have. One other tip: As hotels reduce housekeeping head counts, they are stretching out available personnel by moving up the checkout time and pushing back check-in time. Confirm the hours in advance.

If You Book It, They Will Charge You

Many hotel chains have adopted a favorite airline industry ploy: They've added substantial restrictions on their absolute lowest rates. Usually, the cheapest nightly rate you can find for a room will now require full payment when you make the reservation. And that payment will be nonrefundable. If you don't show, the hotel not only won't refund your money, it probably won't give you credit toward a future stay. Of course, there's nothing wrong with prepaid, nonrefundable rates. But proceed with extreme caution if you think your plans may change.

The Naked Truth

The hotel industry is split along what passes as ideological lines when it comes to discounting. Some chains (most notably Hilton) have slashed their nightly rates with gusto in order to fill their properties. Others (think Marriott) are adding value-added perks (free meals, gift cards) to keep the nightly rate up. Absolute rate cuts are called "naked discounting" in industry parlance, and they have a clear and present advantage: They're cheap. But paying more for a value-added rate can yield more, well, value—if you actually use the additional perks. If all you need is the room and board, go for the naked discount. If you like what you're getting in a value-added package and the rate is priced right, go for it. (Wondering about the underlying ideology? Some hotel marketing executives insist that it will be harder to raise rates in good times if prices are cut now, so they prefer to bundle the higher rate with extras to keep up appearances. Others insist travelers now understand the realities of supply-and-demand pricing.)

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