Gov’t lowers per diems, hotels expect to suffer

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The lodging allowance portion of government per-diem rates is dropping in Colorado Springs and 310 other areas across the nation.

Hoteliers and economists say this will further hurt an industry that’s been hit hard by the recession. Tourism is a $6 billion annual industry in the Pikes Peak region.

In the Springs, the per-diem rate declined from $88 to $84.

Terry Sullivan, CEO of the Colorado Springs Convention & Visitors Bureau, tried to keep the numbers in perspective.

“In comparison to some major cities, we are very fortunate,” he said. “Few local hotels are happy, but what recourse do they have?”

The government rate drop comes on the heels of two years of local room-rate decreases, as hoteliers and innkeepers have cut their prices to fill rooms during the longest recession in decades.

“Government is a big sector in Colorado Springs, about 20 percent (of business) for hoteliers is government,” said Jim Breeden, who is general manager of the Colorado Springs Marriott and president of the Pikes Peak Lodging Association. “Losing $4 a night will have a significant impact.”

Government business includes both “transient” and group segments in hotels.

Breeden expects that during the next tourist season, some of the major hotels won’t offer government rates during high-demand periods.

“Hotels are like airlines,” he said. “During peak demand periods, they try not to offer discounted rates.”

Because the region attracts so many seasonal tourists, government business may shift to other cities that don’t have such fluctuations. Hotels in such cities are likely to continue offering the government per diem throughout the summer.

This doesn’t bode well for 2011, “the year that’s supposed to be the beginning of the recovery,” Breeden said. “Hotel rates are already lower than they were four or five years ago.”

Limited-service hotels may pick up some business during summer if larger hotels don’t offer the government rate.

But many hoteliers say that’s a risk they cannot take. They don’t want to lose year-round government business.

On the other hand, the lower rate strains budgets that have already been trimmed repeatedly in recent years.

“We’ll still have the same amount of government travelers staying at the hotel,” said Zan Wagner, general manager of the Radisson Hotel Colorado Springs Airport. “But none of my costs have gone down — in fact, they’ve increased.”

Like so many others in the region, the hotel had already reduced staffing and cut back on expenditures in order to ride out the recession.

“We have a steady stream of government travelers. It’s a big part of our business. And now our revenue stream has gone down 5 percent,” Wagner said.

The $4 drop per room night per-diem represents “a decrease of a couple hundred thousand (dollars) in one year,” Wagner said. “It’s caused me a lot of problems in the last few weeks.”

Not only that, but employees didn’t receive raises last year because of the decline in business.

“They’re expecting raises this year,” he said.

His plight is typical of most hoteliers in the region.

Revenue is down. Food costs have gone up, and the Radisson includes breakfast with its rates.

“We don’t want to start taking amenities away,” Wagner said. “We want to offer more and give more away for free, if I were in market do that.”

In Colorado Springs, there are only about a dozen full-service hotels. The U.S. General Services Administration, which sets government per-diem rates, includes full-service hotels along with limited service and extended-stay properties, which drags down the per-diem rate.

Colorado Springs is one of 378 “nonstandard” areas, meaning that the federal community travels here frequently, and thus the rate is reviewed annually. Of that number, 310 had decreases for fiscal year 2011, which began Friday (Oct. 1).

Nationwide, the new rates represent an overall decrease of 3.85 percent.

Rebecca Tonn can be reached at rebecca.tonn@csbj.com or 719-329-5229. Friend her on Facebook.