With new hotel rooms keeping pace with visitor growth, hoteliers won’t find profits easy in 2004.

The addition of hundreds of new hotel rooms and a sluggishly expanding business travel market will make 2004 a challenging year for San Diego’s hospitality industry. Nevertheless, the region will attract 27 million visitors, a 2.4 percent increase from 2003, and overall spending will hit $5.4 billion, up 3.5 percent. The region’s visitor attractions — SeaWorld, the Zoo and Legoland, for instance — will collectively see attendance climb 3 percent to 12.1 million.

Cities outside of Southern California would love to face similar challenges.

Hotel occupancy levels will drop 2 percent to 68.4 percent in 2004. The average rate paid for a room will climb 3 percent to $114.68. New hotels affecting the market this year are the Omni adjacent to Petco Park, with 512 rooms opening in April; Estancia of La Jolla with 210 rooms opening in La Jolla in May; and the absorption of the 750-room Manchester Grand Hyatt expansion, which opened in mid-2003. Other hotels scheduled to open in 2004 include the Staybridge Suites Downtown (180 suites) and the Homewood Suites in Torrey Hills (120 suites).

At the same time these new rooms become available, boosting the region’s total to 53,537, the San Diego Convention Center will experience a dip in business. Center operators anticipate booking 500,000 room nights for 2004, down about 200,000 nights from 2003 totals. San Diego is not immune to a national hotel meeting market decline now is in its fourth year. Still, for convention business, 2004 will be better than 2002.

Portions of San Diego’s tourism economy will follow the national trends.

The National Business Travel Association forecasts a promising year in corporate travel as the economy rebounds. Companies will increase their meeting and convention budget, which had been severely cut in the past two years, by about 5 percent. Many analysts already have projected an economic upswing for 2004, and a boost in the economy will translate into a lift for corporate travel.

A survey of business travelers reveals three-quarters of business travelers expect their level of travel will increase or remain the same over the next six months. Hospitality Advisors International reports “business travel will rebound in the United States and overseas next year sending occupancy levels up from 61.8 percent to 64.9 percent in 2004. Hotel room rates are expected to rise 2 (percent) to 3 percent.”

Were it not for all the new local rooms, San Diego’s hotels would be posting higher occupancy levels, and rate increases would be higher than the cost of living.

San Diego’s hotel industry will have much on its mind this year, including the massive changes occurring in “distribution channel management,” a phrase that refers to the path room sales take before being booked by a paying customer. With customers constantly surfing third party Web sites for deals, managing the daily rate charged for a room will become even more of an art. Non-traditional competitors such as cruise lines, time share, fractional ownership clubs, corporate housing and a travel alternative, video-teleconferencing, each are impacting the industry.

Hotel operators also will face the escalation of the amenities war.

Years ago, when times were good, hoteliers added amenities such as free breakfast, expanded toiletry items, expanded business services and concierge service. The energy crisis, coupled with the economic downturn, eliminated some of these services. Now, with a desire to drive rate, hoteliers are going to attempt to add services such as free high-speed Internet and other business amenities to lure the critical business traveler back, or at least away from a competitor.

Forecasts of economic activity also must carry a caveat. These include the potential for worsening budget and trade deficits, changes in federal policy on interest rates, the performance of corporate earnings, final holiday retail spending figures, terrorist attacks, war and general traveler sentiment. Naturally, with these caveats, the possibility exists that the economy will not grow markedly.

Yet at the end of the day, it is clear that San Diego is one of the most desirable destinations for all travelers. It has climate, attractions, resorts, golf, gaming, spas, meeting facilities, restaurants and lots more. It also is one of the most sought after real estate investment markets. Nothing on the horizon is likely to change that, so my expectation is that 2004 will be a solid but not stellar year. For hospitality businesses looking for increased profits, stay alive until ’05.

Robert A. Rauch, president of R. A. Rauch & Associates Inc., a hotel management and consulting firm, and director of the Center for Hospitality & Tourism Research at SDSU. He collaborated this year with the San Diego Convention & Visitors Bureau on its forecast released in mid-December.