The Recovery for US Hotels

Ernst & Young's 2003 National Lodging Forecast released this week indicates that US hotels spent last year recovering from the toughest year in recent memory.

If 2002 was 'the storm,' then 2003 will be the 'drying out' year according to Ernst & Young. 'The worst is now behind us,' said report author and Ernst & Young's Hospitality Services Group National Director, Chase Burritt. 'In 2002 the mentality was 'batten down the hatches' and make it through with your operation intact. We saw rates across the nation come down as operators tried to find a balance between occupancy and room prices.' He believes that 2002 will go down as the worst period for the hospitality industry in the last twenty years, with virtually every national market being negatively affected to some degree.

Burritt thinks a significant rebound for the hospitality industry will not occur until 2004, but that recovery is already beginning to form as room rates and occupancy are slowly moving up. Even though the full recovery is still months away there is a bright spot, as Burritt believes the worst is not only over, but that the operational cuts made to get through 2002 should make hotels even more profitable when the markets do rebound in 2004. 'Everybody did what they could to operate more efficiently and tighten up on their costs and expenses to get through 2002. In the long run that will help the bottom line even more as the markets improve.'

The report breaks down the top 24 lodging markets across the country and analyzes the challenges and opportunities of each one. The report looks at the last two years worth of room rates, occupancy and revenue per available room (RevPAR), a key indicator of how the market is performing, and also makes predictions where the markets are headed for 2003.

Not surprisingly, most markets have made rate adjustments to cope with the reduced demand for rooms and it was the higher-end markets and hotels that often had to make the biggest rate cuts to survive.

Ernst & Young's report predicts that US RevPAR will increase by approximately three percent in 2003 and that occupancy will run around 60 percent, up only 1/2 a percent from 2002. The lower than normal industry statistics are mainly due to the continued slow economy and reductions in corporate travel that have been then norm since mid-2001.

Of the various hotel segments, Burritt has seen the business and convention scale hotels perform slightly better than the luxury and economy segments in the past 12 months. The difference is mainly due to the fact that luxury and economy travellers have more discretion over when and where they stay, while business travellers are usually locked into visiting certain cities for a specific purpose and often have less flexibility.

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas unless otherwise stated.