NATIONAL REPORT— While at least two of the industry’s leading market-watchers are confident next year is shaping up to be a solid one for the chain-affiliated sector of the hotel arena, if a war with Iraq enters the picture all bets are off. “Despite the frustrations many are feeling about securities market performance and slow growth of lodging demand, the prospects look quite favorable for chain-affiliated hotels in 2003,” said HRG Managing Director Jack Corgel, Ph.D. “The unanticipated consequences of a war in Iraq, however, shifts hotel revenue forecasts noticeably downward.” But that is the worst-case scenario. “Assuming a war does not occur, the forecasts reveal growth in chain-affiliated demand and supply that are expected to produce increases in both occupancy and average daily rate (ADR) during 2003. While supply growth is anticipated to moderate at 2.3%, demand for hotel rooms is forecast to increase by 6.3%, leaving a sizeable gap in supply and demand conditions,” Corgel said. “As a result, RevPAR growth is forecast to turn positive in 2003 and increase 6.8% by year’s end. Occupancy is [similarly]expected to increase by 2.4% and ADR is expected to climb 2.9% in 2003,” he said. In line with these predictions, Corgel contended: “While 2003 is not projected to be a banner year for the lodging industry, reasonable growth [looks like it]will occur as the U.S. economy recovers.” Understandably skewing these forecasts would be (any) war with Iraq. Specifically, economists at HRG and TWR purportedly believe a war would have the largest impact on chain-affiliated, full-service hotels. “Our analysis shows RevPAR growth in this segment will be significantly reduced in the case of a ‘short-war’ scenario, while it will turn negative in the case of a ‘long-war’ scenario,” stated Petros Sivitanides, Ph.D., vp/research at TWR. (The short-war scenario assumes the war would last for only one quarter, while the long-war scenario accounts for a protracted engagement with Iraqi forces, lasting as long as four quarters.) Accordingly, economists at HRG and TWR have estimated the effect on the nation’s full-service hotels by applying to the quarterly demand forecast the percent of room-nights lost in the first quarter of 1991 due to the Gulf War. As explained, this loss of business was independent of the 1990-1991 recession. (See accompanying table for various scenarios, page xx). With regard to several other areas pertaining to the overall health and vitality of the lodging industry, Corgel maintained the fall-out of a war with Iraq would have to be figured into the mix as well. To this end, he offered several “educated guesses” on the conditions that might conceivably prevail in the event full-scale conflict between the U.S. and Iraq comes to pass. For starters, “Both ADRs and occupancy levels would take [another]hit. However, room rates probably wouldn’t fall quite as much as occupancies might,” Corgel said. As to the further financial bind that might force upon the nation’s hoteliers, Corgel claimed: “I don’t think the delinquency rate— which, by the way, we see gradually dropping at this time— would be severely impacted by the reality of such a war. After all, both scenarios suggested here are for relatively short durations, while the process of delinquency-into-default is generally a considerably longer-term situation.” On yet another front, Corgel said a war with Iraq “would likely not have much impact on the pace of new hotel construction. Granted, it could delay some decision-making, and it’s certainly possible it would stretch out the time it might ordinarily take to implement such plans. In short, it could definitely lengthen that time during which the pipeline isn’t full.” In the final analysis Corgel offered: “The effects of [another Iraqi]war on the economy, should it occur, hopefully will be moderate because of so much advanced warning.”
