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 Hotel Room Inventory in Colorado Springs Area Grows 42%
 In Last Decade; Occupancy Running Only 58%
 for First 7 Months of 2003


By Paul Beebe, The Gazette, Colorado Springs, Colo.
Knight Ridder/Tribune Business News

Sep. 21, 2003 - It might be called the bursting of Colorado Springs' hotel bubble.

After a flurry of construction in the late 1990s, Colorado Springs is swimming in a sea of unused hotel and motel rooms.

While lodging companies invested millions of dollars to build thousands of rooms, the guests who were expected to fill them aren't showing up.

The result: Stagnant room rates are putting pressure on profits; aging motels are becoming eyesores; a number of properties are for sale as owners lose the struggle to balance expenses and revenues.

"The number one problem is the increase of the motel rooms that have been developed here," said George James, who owns the 16-room Dillon Motel in Manitou Springs. James' grandparents founded the motel.

"We may have had as many people (visiting) here as five or six years ago, but the number of people has not increased to offset the number of motel rooms (added)," James said.

The numbers are telling. The tally of hotel and motel rooms in the Colorado Springs metropolitan area has jumped 42 percent in the past decade to 10,870 units, according to Smith Travel Research, a Tennessee-based company that tracks the lodging industry.

Use of those rooms, however, has lagged. In summer 1994, with the occupancy rate at 93 percent in July, virtually every hotel and motel room in the Springs was full. This July, the rate was 74 percent, following a decade of unbroken declines.

The Colorado Springs lodging industry is highly seasonal. Hotels and motels must be brimming with customers in July to weather the winter months, when business dwindles. Thus, even with plenty of summer customers, annual occupancy rates can fall short of expectations, making it difficult to meet financial goals. The occupancy rate through the first seven months of this year is 58 percent.

"That is not healthy," said Gary Upton, who manages the 500-room Sheraton Colorado Springs Hotel.

"You need to be at 65 percent to 70 percent on an annual basis, depending on debt service. You don't build hotels around 58 percent," Upton said.

Hotel companies built an average of more than 450 rooms in Colorado Springs each year from 1995 to 2001. One reason, some say, is the brief life of Western Pacific Airlines, which sprang into existence in 1995 and died three years later.

Through an aggressive startup and marketing plan, the Springs-based airline made the city's airport the nation's fastest-growing. WestPac brought thousands of travelers to the Springs. Hotels scrambled to meet the unprecedented demand by adding thousands of rooms.

At one point, WestPac's mystery fares program to fill empty seats in its jets was bringing as many as 6,000 travelers to Colorado Springs for a weekend, said Terry Sullivan, president of the Colorado Springs Convention and Visitors Bureau.

"It was like a spigot that was turned on and off," Sullivan said.

"If WestPac heard that there was an abundance of hotels in Colorado Springs, and they had an abundance of airline seats, they could open up the market.

"The landscape was different when you had your own discount airline flying to and from Colorado Springs," Sullivan said.

The airline flew skiers into the city during the winters and tourists during the summers. The hotel industry responded by going on a building spree.

Close to 3,200 rooms have been added in El Paso County in the last decade, including 2,724 units in 1995-2001.

Average cost per room: $75,000 to $150,000, putting the total price tag at $240 million to $480 million.

At first the industry's building frenzy seemed to work. Annual occupancy rates peaked in 1997 at an average of 69 percent for the year, although summer occupancies already were showing signs of weakness. That year, WestPac moved its base to Denver International Airport after filing for bankruptcy. In 1998, three years after its founding, the airline went out of business.

The lodging industry was slow to adjust. With the city's technology industry in high gear, hotel and motel owners continued to open new rooms -- 520 overall in 1998 and almost 1,000 rooms overall in the following two years.

WestPac's demise wasn't the only factor to undermine the Springs lodging industry. The emerging Internet was becoming a commercial colossus that experts say will continue to have important consequences for hotels and motels.

Until 1996, the Internet played no role in vacation planning. Today, the World Wide Web has expanded the vacation options for millions of American families, enticing people who might have visited the Springs to different locations, Sullivan said.

"The consumer has more opportunity to research his desires than ever before. Ten years ago, (his) choices of vacation planning were less," Sullivan said.

The Internet also allows consumers to shop for better deals, an unwanted development for the lodging industry, especially when occupancy rates are falling.

The Radisson Inn Colorado Springs North has turned to the Internet to attract more guest visits. It has hired a computer expert to establish advertising relationships with Internet companies such as Travelocity, Priceline and Hotels.com, said general manager Frank Thomson.

"We are starting to realize a substantial increase (in room bookings), but it's heavy-discount business," Thomson said.

Thirty percent of the Radisson's business in July was booked over the Internet, he said.

"August was 29 percent, and September is looking pretty good, too. It's a different animal," Thomson said.

Meanwhile, the technology-led U.S. economy peaked in March 2000, setting up a recession that began in 2001 and accelerated after Sept. 11. Business and leisure travel to the Springs dried up. Employers shed thousands of jobs. And occupancy rates at local hotels and motels tumbled further. The average occupancy rate for all of 2002 was 55 percent, the lowest annual rate in 10 years.

While local managers see signs that the worst is behind them, few expect a full recovery this year or in 2004. They say the best way to work off the excess capacity of rooms in the Springs is for the national and local economies to revive.

"Business travel has to come back. We are doing well with government, but corporate America has to start traveling again," said the Sheraton's Upton, who also manages the 200-room Holiday Inn Garden of the Gods.

This month, the local lodging industry heard the first piece of good news in a long time: The government has increased its daily lodging allowance for federal travelers to the Springs by an average of 20 percent.

The extra revenue will flow to the bottom line. It will support higher average room rates, which in 2002 were at their lowest level in six years, according to Smith Travel Research.

Yet even if Americans begin to travel again, it's not certain they will return to Colorado Springs in the same numbers.

Many hotel owners and travel experts say Colorado Springs must improve and expand its amenities.

"We badly need a convention center (in downtown Colorado Springs)," said James, who owns the Dillin Motel. "It will extend the season for tourism. A convention center would bring more tourism business (to the area) in the off-season. It would enhance that."

Ever since Colorado voters rejected a tourism tax in a statewide referendum in 1993, tourist industry groups have been lobbying lawmakers to re-establish a publicly funded mechanism for tourism promotion. This year, the Colorado Tourism Office got a $9 million infusion of cash from the General Assembly as part of an effort to stimulate the weak economy.

Many hotel operators in the Springs say the loss of tourism advertising hurt their businesses. They favor a proposed ballot measure that would allow video lottery terminals at five racetracks, including one in Colorado Springs. Supporters say the terminals could raise at least $66.5 million for the state every year, part of which would be spent promoting tourism.

"I know the state got back into advertising Colorado, but the fruits of that may take years to come," said Roland Sardaczuk, general manager of the Red Lion Hotel.

-----To see more of The Gazette, or to subscribe to the newspaper, go to http://www.gazette.com

(c) 2003, The Gazette, Colorado Springs, Colo. Distributed by Knight Ridder/Tribune Business News. HOT, TSG, PCLN, ROOM, IHG, WEH,

 
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