Hospitality leaders issued a sobering view of the hotel industry during the seventh session of the Cornell School of Hotel Administration's (SHA) Dean's Leadership Series held at the Metropolitan Club Nov. 15 in New York City.

Speaking on "Distribution Management: Who Owns the Hospitality Customer?" the panel of experts agreed that hotel debt acquired at the height of the real estate bubble between 2005 and 2007 will continue to influence room rates and the development of new properties.

"Two billion dollars in financing is coming due this year," said Jay Shah '90, CEO of Hersha Hospitality Trust. "Next year five times that amount will be due, and the following year another five times."

"Many properties were financed at the peak of the bubble," said Joe Long, chief investment officer and executive vice president of development for Kimpton Hotels and Restaurants. "Making debt service is the primary goal of individual managers who are setting room rates."

Added Sush Torgalkar, managing principal, Westbrook Partners: "It doesn't matter if the industry as a whole is weakened, revenue has to meet payroll."

Michael D. Johnson, dean of SHA and moderator of the event, said that the crucial question is how these issues will affect distribution management. He described distribution management as a complex business component of the hospitality industry, involving such online travel agents (OTA) as Expedia, Travelocity and Priceline, which "everyone is trying to figure out ... to come out on top."

"OTAs play a significant spot in the eye of the consumer," said Chris Anderson, SHA assistant professor in operations management. Anderson said customers search OTAs for the best price, then contact suppliers. "The ratio of customers booking through suppliers versus OTAs is 10 to one" in favor of suppliers, said Anderson. He noted 2010 will be the first year that off-line reservations grow faster than online.

"Everyone wants to own the customer," said David Pavelko, head of travel at Google. "If OTAs weren't providing value, suppliers would pull out." Pavelko said it was a healthy time for the industry "to grow the pie" versus shifting it around.

"Most suppliers now have an online presence," said Long, so brand loyalty is important. However, in this tight economy, hotels can't invest in upgrading their hotels. "In major urban markets, no one is investing in FFE (furniture, fixtures, equipment), so all the rooms look tired," said Long. "We're all just bumping along." He added that the lack of capital investment creates a negative mindset in on-site management teams, who become hesitant to push for higher room rates.

"Brands are working on FFE requirements with owners to get their products in the best position," said Torgalkar.

Sherri Kimes, SHA Singapore Tourism Board Distinguished Professor in Asian Hospitality Management, said she thought service, rather than amenities, will have to drive brand loyalty in the short term.

Addressing room rates, Shah said: "Projections of rate increases of nine, 10 or 11 percent may be over-optimistic. If you exclude New York City, Boston and Washington, rates will increase by half of that." Several panelists agreed that room rates will return to year 2000 levels by 2013.

The Dean's Leadership Series was established in 2007 as a venue for academic and industry leaders to debate pressing hospitality issues of the day. Past sessions of the series in Orlando, Washington, D.C., and New York have looked at industry sustainability, real estate capital and restaurant profitability.

John Mikytuck '90 is a freelance journalist, writer and producer in New York City.