BOSTON and ATLANTA— Next year looks to be a solid year for the chain-affiliated sector of the hotel industry provided the U.S. does not go to war with Iraq, reported Boston-based Torto Wheaton Research (TWR) and the Atlanta-based Hospitality Research Group, the research arm of PKF Consulting (HRG). “Despite the frustrations that many are feeling about securities market performance and slow growth of lodging demand, the prospects look quite favorable for chain-affiliated hotels in 2003. The unanticipated consequences of a war in Iraq, however, shifts hotel revenue forecasts noticeably downward,” notes Jack Corgel, Managing Director for HRG. Economists at HRG and TWR believe that a war with Iraq will have the largest impact on chain-affiliated full-service hotels. “Our analysis shows that 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,” states Sivitanides. The Short War scenario assumes that the war will last for only one quarter while the Long War scenario accounts for a protracted engagement with the Iraqi forces that lasts for four quarters. Economists at HRG and TWR have estimated the effect on the nations 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. This loss of business was independent of the 1990-1991 recession. According to Corgel, “The effects of this war on the economy, should it occur, hopefully will be moderate because of so much advanced warning.” 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. As a result, RevPAR growth is forecast to turn positive in 2003 and increase 6.8% by year-end. Occupancy is expected to increase by 2.4% and ADR is expected to climb 2.9% in 2003. While 2003 is not projected to be a banner year for the lodging industry, reasonable growth will occur as the US economy recovers. The HRG/TWR forecasting models reveal that most movements in the general economy are reflected in the demand for chain-affiliated hotel rooms during the same quarter as they occur. As a result, hotels with brands should benefit by the end of 2003 from momentum building in the economy.
