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Lodging still down, but supply side in control, reports STR

The U.S lodging industry posted a 1.1% occupancy drop during the first quarter of 2003 vs. the first quarter of 2002. Meanwhile, the average room rate dropped 0.5% to $84.72 as RevPAR decreased 1.6% to $46.35, reports Smith Travel Research.

"The war in Iraq, continued terrorist threats and a sluggish U.S economy slowed U.S lodging industry performance in the first quarter. However, slower room supply growth, combined with improved economic performance and improvements in the Middle East should contribute to improved industry operating performance for full year 2003," says Mark Lommano, president of Smith Travel Research.

Clearly, the volatile geopolitical situation abroad has hampered the sector’s recovery. But, as Lommano points out, the conclusion of Operation Iraqi Freedom’s formal warfare should speed recovery along. The wild card remains terrorism, as the threat of renewed attacks against U.S interests at home and abroad is still a paramount concern. The government recently downgraded the national threat level, though cities like New York City — a tourist Mecca during healthy economic times — remain on high alert.

As such, lodging analysts are cautious to make concrete predictions regarding the sector’s recovery. Many such predictions hedge by citing the "event risk" scenario (i.e., a specific terrorist attack) as subjecting any forecast to change. It’s easy to see why such disclaimers are now common: the U.S lodging industry reacted sharply to the 9/11 attacks, registering a 16.6% occupancy decline immediately following the events.

One positive trend emerged during the first quarter: industry room supply increased only 1.6%, down from 1.8% in the first quarter of 2002, and chain-affiliated hotel supply is expected to increase by only 1.7% this year, according to a Hospitality Research Group/Torto Wheaton Research study. Supply is expected to bottom out at 1.5% by the fourth quarter, which would be the lowest quarter-over-quarter supply growth since 1995.

In addition, industry demand (room nights sold) rose 0.5% in the first quarter vs. a decrease in demand of 3.9% in the first quarter last year. Room revenue for the quarter was flat at $18.3 billion.

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