Front Desk

A chink in the armor?

In the last few days, I've seen the first signs of a chink in the lodging industry's armor of relative prosperity in the face of an economy in the dumps. While the economy and stock market have been shaky (to say the least) in recent months, hotel industry fundamentals have remained mostly positive (occupancies down slightly, rates increasing at a low single-digit pace). As a result, the consensus has been that the lodging business will pull through this cyclical downturn in decent shape.

A lot of that has changed in the past few days. Several events triggered my new pessimism:

• Several hotel company stocks hit or approached recent lows following a negative industry report by an Oppenheimer lodging industry analyst. Among those stocks touching bottom were Gaylord, Starwood, Choice and InterContinental.

• A dire report issued yesterday from PKF Hospitality Research showed how intertwined the hotel business is with the ailing airline industry. According to the report, a sharp decline in airline capacity could trigger a downturn in lodging demand "greater than that experienced during the turmoil following the terrorist attacks on Sept. 11, 2001." Specifically, according to PKF, a one-percent decline in the number of seats flown in the U.S. would result in a .39-percent decline in demand for hotels. A 10-percent fall in airline capacity would mean a 3.9-percent drop in lodging demand, higher than the 3.3-percent fall-off experienced following 9/11. The worst part is that all of this is out of control of the hotel industry. Imagine the frustration of those hoteliers in the Caribbean and Hawaii who face the prospect of fewer visitors coming to their destinations, and there's nothing they can do about it.

• This morning, Marriott International posted a 24-percent drop in its second-quarter profits as compared to the same time last year. The company also downgraded its performance forecast for the year and even suggested it may show an overall decline in RevPAR for the year. Nor surprisingly, Marriott stock is down more than a dollar in early trading today.

I'm still not convinced that the sky is falling for the hotel industry, but it makes more sense than ever for owners and operators to pay attention to the little things in their businesses. It's time to hunker down and ride out the storm.

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