NEW YORK— The combination of the World Trade Center attack, ensuing war on terrorism, drop in the stock market, and prolonged reductions in corporate travel have combined to make 2002 the worst period in the last 20 years, according to a recent report from Ernst & Youngs Hospitality Services Group. The E&Y analysts describe the challenges this year will bring, analyze the major U.S. markets, and offer advice on how to ride out the storm in their report titled, “2002 National Lodging Forecast.” Not surprisingly, the report found that some markets are fairing better than others. San Diego is poised to recover the fastest, within three months. Markets like Baltimore, Chicago, Detroit and San Antonio are set to recover in five months. Atlanta, Boston, Dallas, Denver, Houston, Los Angeles, Miami, Orlando, Philadelphia, Phoenix, Puerto Rico, Seattle and Washington D.C. should recover in six to twelve months. However, Hawaii, Manhattan, and San Francisco may take up to fourteen months to recover. Another industry-wide effect is the slowing of new hotel construction, which could actually stabilize occupancy rates and help the recovery process begin to take hold in 2002, according to E&Y. In addition, hotel profit margins dropped in 2001 and that trend will continue for 2002. As the margins get thinner hotel stocks will continue to drop and loan defaults will become a possibility for some of the upper-end hotels, where expensive services are the norm and operators are more reluctant to cut prices. A recovery for the industry is expected in 2003 with the market returning to normal in 2004.
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