Recovery Fades for the Hotel Industry

Six weeks into the travel crisis sparked by the Sept. 11 attacks, a recovery in business for U.S. hotels already is fading with revenue likely to remain down about 15% for the rest of the year, analysts said Monday.

The hotel industry was among the hardest hit after the attacks, with room revenue down 37% in the first full week after Sept. 11, according to data tracking firm Smith Travel Research.

Revenue bounced back strongly in the weeks that followed and were down a more modest 18% by the week ended Oct. 6. In the next week, however, the recovery rate had slowed considerably with revenue still down 16%.

“There’s a concern the improvement is flattening out as you went from negative 37 [percent] to negative 16,” said Steve Kent, an analyst at Goldman Sachs. “It doesn’t look like it’s going to improve all that much more drastically.”

In fact, hotel room revenue already were down 5% in August--before the attacks--as businesses and consumers cut back on travel spending amid the economic slowdown.

Kent said room revenue would have been down 7% to 10% for the rest of the year without the travel crisis, but now that number probably will be closer to 15% for the rest of the year.

“It’s hard to see it will get much better than this,” Kent said. “You’re facing tough comparisons through the first quarter” of 2002.

The slowing improvement was partly behind Deutsche Banc Alex. Brown’s decision Monday to lower its outlook for five hotel companies: Hilton Hotels Corp., Starwood Hotels & Resorts Worldwide Inc., Wyndham International Inc., Prime Hospitality Corp. and MeriStar Hotels & Resorts Inc.

“Recent data from Smith Travel suggest that the industry’s initial rebound has begun to moderate,” analyst Mark Mutkoski wrote in a research note.

He said he expects continued contraction in room revenue through the second quarter of next year, with sequential improvement after that until comparisons turn positive in the third quarter.