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Better-than-expected holiday occupancies raise hope for hotel industry

For an industry that’s facing tough times, the mood at the Seventh Annual Lodging Conference at the Arizona Biltmore Resort & Spa in Phoenix was jovial, but realistic about the challenges ahead. The conference discussed the short- and long-term implications of the Sept. 11 terrorist attacks, as well as the economic recession.

Originally, the conference was supposed to begin Sept. 12. On Sept. 11, some attendees had already arrived for the Deal Corral — a section reserved for those looking to make deals — while others were on their way to the airport when the attacks closed airports across the nation indefinitely. The Lodging Conference had been stopped in its tracks.

Even so, the canceled conference would be the least of the hotel industry’s worries. After Sept. 11, occupancies dropped at record paces in New York and Boston. The hotel travel and tourism industries were badly hit by the fear of traveling and later the U.S. economic recession.

Morris Laskey, conference chairman and CEO of Lodging Unlimited sent a letter to all the conference attendees just after the attacks announcing that the conference had been rescheduled. "We struggled with what to do about The Lodging Conference 2001 as well as the upcoming International Resort Conference planned for Coral Gables, Fla., in February. We have decided to combine both events into one conference to be held at The Arizona Biltmore Resort and Spa from Jan. 8-12, 2002," Laskey wrote.

With 820 hotel executives from across various disciplines, the rescheduled conference was well-attended. But throughout the three-day event, one topic took center stage: When would the hotel industry recover from the aftermath of Sept. 11?

Dealing with Sept. 11

In one session on Jan. 11, exactly four months after Sept. 11, moderator William Fisher, Ph.D., professor at University of Central Florida’s Rosen School of Hospitality Management, asked four panelists to discuss what happened to each of them on the day of the attacks.

"That tragic day defies description," said Dieter Huckestein, president of hotel operations for Hilton Hotels Corp. "For once I wasn’t traveling. My office became a control center." Huckestein said that one of his first concerns was increasing security levels at all of the company’s hotels. Another major concern was establishing contact with the Embassy Suite and Millennium properties located in Downtown Manhattan. But the underlying question remained: "How do we recover? What do we communicate to all our team members?"

Eric Pfeffer, former chairman & CEO of Cendant Corp.’s hotel division, was waiting in Newark airport to take a flight to the Lodging Conference. "I decided to retire," he joked. (Actually, Pfeffer had already announced his retirement on Jan. 6, 2001.) Instead he left the airport to return directly to the office to discuss what to do. "In the New York area, we sent letters to all the franchises to offer them a sense of comfort and to warm them not to price gouge," Pfeffer said. "We cancelled conferences that were coming up in two weeks. Then within a week the company had implemented a contingency plan, which was developed following the Gulf War conflict, to offer help to franchises including cost cutting measures."

For Charles Ledsinger Jr., president and CEO of Choice Hotels International, it was particularly terrifying being in Washington, D.C. "We had people in the office who had family members who worked in the Pentagon and State Department," he said, adding that everyone knew there was another plane coming. "There was a lot of trepidation of what’s going to happen next."

Ledsinger said that the company then moved to discuss security and what was needed to protect employees and communicate with franchises. "At a meeting the next week in Williamsburg, Va., the reaction was not what does this do to our business, but what can we do to help," he said.

Robert Parsons, Jr., executive vice president and CFO of Host Marriott Corp., said the company was lucky to have all the members of the executive committee in the office on Sept. 11. "We moved to the board room and turned on the television to figure out what was occurring," he said.

The most immediate concern was for two hotels, one of which was adjacent to the World Trade Center property and another that was a block away. "We wanted to track all of our associates and find out the status of guests," Parsons said. As the World Trade Center crumbled, the executives knew they had lost the Marriott World Trade Center hotel. The other hotel Marriott downtown was reopened last week in a signal of the recovery of Downtown Manhattan. Finally, the company executives sat down to sketch long-term plans for their hotels.

The business impact

In response to the attacks, all of the companies changed or revised their budgets for 2002, in response to the attacks. Another issue that came up was the insurance issue. All of the companies agreed that the price of insurance —particularly terrorism insurance — would have long-term impact. The executives agreed that the government should step in with a solution to the insurance issue.

For Pfeffer, a valuable lesson was learned. Cendant took an initiative to gather its employees at headquarters to meet with a third-party company to offer support to employees affected directly or indirectly by the tragedy. He said that supporting employees is one of the first things a company should do.

For hotels like Host Marriott, the decline of travel immediately following Sept. 11 was devastating. Most of their travelers arrive by plane, with 80% to 90% business travelers. The hotel was hit pretty hard, said Parsons. Even so, the company does not plan to pursue leisure travelers. The firm’s leaders believe the business travel, the company’s bread and butter, will return.

For Choice Hotels International, which has a larger share of leisure travelers, the impact wasn’t as bad because most travelers arrive by car. Prior to Sept. 11, the company was trying to lure more business travelers to the properties, but now it is focusing back on leisure customers, such as baby boomers who are nearing retirement.

Of the four panelist’s companies, only one, Choice Hotels International, was spared from losing a team member. Hilton lost two company employees on one of the flights out of Boston. Marriott lost two executives, and Cendant lost one.

The road to recovery

For hotel companies the road to recovery is still ahead. Predictions about when the recession will end abound, but really no one knows when the economy will start moving ahead. "Our theory was this will somewhat bounce back in six months," said Huckestein. "It was important for us to believe in it and to communicate this belief to constituents."

As one executive said: "usually when you have a great year you can’t predict it, and vice versa."

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