PKF Sees Stronger Second Half For Industry

NEW YORK— The final tally on hotel performance for this new year is still 11 months off, but forecasts offered by PKF Consulting’s research team here suggest 2001 will be another solid year for the hospitality industry— although it may not be as strong as 2000 due to political and economic developments. PKF Consulting Senior VP John Fox noted that Democrat-led administrations over the past 70 years have historically resulted in higher hotel occupancy rates, while those periods with Republicans at the helm have largely seen the industry post higher ADRs. Additionally, Fox said, “RevPARs have probably been stronger as well during times of Republican leadership.” Fox and his fellow PKF researchers are in general agreement with other industry observers and market-watchers that this year will likely be another “good” one for the hotel sector. That said, however, it may be necessary to define “good” and “bad” as the terms apply to hotel occupancy, profitability and overall performance. Year-end 2000 quarterly trends as tabulated by PKF indicate growth in hotel occupancies— as well as in rates— will be less in 2001 than in 2000. As noted by PKF industry-performance pundits: “We estimate occupancies to grow at a 0.6% rate and ADRs to grow at 3.3%.” In line with these predictions, the hospitality researchers anticipated “a sluggish first quarter, followed by recovery in [the]spring and summer.” “Performance-wise, this year will probably be the inverse of last year, a mirror-image, so to speak,” Fox explained. “In 2000, the first half of the year was exceptionally strong, with the second-half being less so. As for 2001, I think we can look for for the latter half of the year to show an improvement [over the first six months]. “Overall,” he continued, “occupancy levels in major cities this year should equal— or perhaps even be slightly above— those of 2000.” In his estimation, much of the concern being voiced throughout the marketplace can be traced to expectations that “occupancy and rate increases will not be as strong as they were last year… though they will still remain at healthy levels. “It’s important to keep in mind that an economic softening does not necessarily equate to a recession,” Fox said. “In fact, slower growth is similarly not necessarily a bad thing.” In line with the findings by the consulting firm’s research affiliate, it was stressed that PKF sees “a slowdown in growth, not a decline in performance” for the nation’s hotel industry. Consequently, “look for U.S. hotels to endure through a relatively tough 2001, and come out profitable at the end.” Industry Vs. Nation Comparing this industry outlook against economic forecasts for the nation, it was reported that a consensus of economists project 3.2% growth in the U.S. economy, combined with a 2.7% inflation rate. It was further noted that both of these statistics are below those realized in 2000. In support of PKF’s generally positive view for the industry, it was suggested that “travel patterns have become somewhat less elastic in their response to movements in the economy. Recent evidence shows that moderate levels of travel can be sustained during slight recessions of a short duration. Given the avoidance of the word ‘recession’ by most economists, [PKF] expects to see levels of travel during the first half of 2001 that are comparable— albeit more price sensitive— to those experienced in the later months of 2000.” Secondly, the firm maintained that today’s “hotel operations are more efficient and have some ‘cushion’ to fall back on. Hotels enjoyed a very profitable decade during the 1990s, [and]despite expense increases 1.5 times— 2.0 times the pace of inflation— profit margins are still at an all-time high. Hotel managers have proven their ability to control labor and energy costs in relation to upward and downward movements in revenue. [As such, PKF] believes hotel management will continue to ‘manage the margin’ to match whatever revenue gr