What next?
Thousands of people died in the terrorist attacks in the USA last week. While we remember those who suffered, it is inevitable that events will take their toll on business and that hoteliers will be among those who start to count the cost and wonder what the future will hold. Reports from Gillian Drummond in the USA and Sara Guild in London.
"The only thing missing is tumbleweed," one bar patron in Manhattan told a New York newspaper last week. A city normally jam-packed with people had been reduced to a ghost town.
It was also, perhaps, a fitting metaphor for the state of the USA's tourism and hospitality industry, which faces its worst economic struggle yet.
In the immediate aftermath of the tragedy, money was the last thing on the minds of America's hoteliers. None of the chains Caterer contacted were prepared to talk figures, and analysts were reluctant to make predictions. "Obviously it's going to have a negative effect but right now it's about dealing with the tragedy," said a spokeswoman for Hilton Hotels Corporation.
Numbed by the attacks in New York and Washington DC, hotel public relations executives broke their own rules and uttered a stream of "don't knows" when quizzed about the future of their businesses. They were more concerned with the short-term - dealing with the damage and providing accommodation for evacuees and stranded visitors.
All the major chains waived their cancellation fees. Hotels across Manhattan offered "distress rates" of up to 50% below their normal prices. Extra beds were made up in ballrooms and meeting rooms to cope with the glut of guests in New York, where two Marriott hotels and the Hilton Millennium were severely damaged. Hotels in New York and Washington offered free food, and employees of Marriott - still missing two workers in New York - offered to donate paid leave to colleagues affected by the tragedy.
But as the airlines began to operate again and stranded guests went on their way, the inevitable cancellations started coming through and reality bit. Before last week's attack, with the economy already on a shaky footing, America's hospitality industry was headed for a downturn this year. Based on studies of the performance of the country's major companies, PKF Consulting's Hospitality Research Group (HRG) had been projecting an average occupancy in 2001 of 68.9% and average room rate of $116.95 (£80). These figures compared to average occupancy of 70.9% and average room rate of $117.81 (£81) in 2000.
But Robert Mandelbaum, HRG's director of research, says the industry has been on such a roll during the 1990s that even with a downturn this year the profits would have been impressive. "We were expecting a short drop-off, but coming down to levels that are more in line with long-term averages." He had not been expecting any "meaningful turnaround" until the second quarter of 2002.
"Two or three quarters is probably long enough time to recover based simply on [last week's] events," says Mandelbaum. But if, as suspected, America's economy goes into an even deeper slump or recession, the industry may hurt for longer, he says.
Analysts at Deutsche Banc Alex. Brown say room demand fell by 4% to 6% in the first quarter of 1991, the time of the Gulf War. They estimate that this figure could double following last week's attacks.
Mandelbaum expects conference and convention business to be the first to suffer: "We're past our summer season and we're entering September and October, which are typically really good convention months." Just a day after last week's tragedy, Mandelbaum had heard of at least three large conferences cancelled, in New York, California and Arizona.
One show that will continue, however, is the International Hotel/Motel & Restaurant Show in New York in November. Joe McInerney, the new president and chief executive officer of the American Hotel & Lodging Association, which holds its autumn conference at the show, says: "We know that for the short term, people are not going to be flying. We've seen that before, during the Gulf War and the terrorist activities of the 1970s."
McInerney hopes people will start travelling again as Christmas approaches. "I feel [the conference] is an opportunity to show that we're not intimidated by terrorists and it's business as usual."
It was not exactly business as usual in Washington DC and New York two days after the attack, but hotels and restaurants were doing their best to get back to normal. John Fox, partner with PKF Consulting's New York practice, says the tourist business will be hit worst. But he is sure the Big Apple will bounce back. "New York will go on and New York is going on. There's a resiliency to New York. We'll get over it."
The same fighting spirit was in evidence elsewhere in the city last week. Callers to The Room Exchange, a hotel reservation firm, heard Gloria Gaynor's hit song I Will Survive transmitted over the telephone. But a spokesman says hotels will be taking "a huge hit" in the coming weeks.
In an interview with American TV station CNN on Sunday, New York's mayor, Rudolph Giuliani said the best support the public could give would be to keep visiting the city. "They can come to the theatre, take in a [baseball] game, and have a meal. Come and spend money here."
In a survey of nearly 100 Manhattan hotels, PKF Consulting found that average occupancy last year was 84.6%, the highest in more than 50 years. Average daily room rates were also at an all-time high of $237.16 (£162.40). For New York, the downturn began at the end of 2000 and average occupancy was down to 74.5% in the first four months of 2001. Fox says this is still "very healthy" and he was predicting improvements in the last quarter of this year. "But that judgement is now out the window," he admits.
Apart from the worries over business, there are also concerns here about hotel security. Although many hotels report tight security procedures, and also crisis management policies, some say things could get tighter. In New York and Washington DC in the days following the attacks, hotel guests' hand baggage was being checked, ID was requested, and access to buildings was restricted. Some hotels were allowing entry through just one door, others would allow only paying guests who could show a room key.
"Maybe security should become a higher priority," says McInerney. "It was in the late 1970s and early 1980s and again in 1991. Maybe this is a wake-up call."
In the meantime, impressed by the solidarity the industry showed last week, McInerney hopes hotels will come together in some sort of promotional or marketing campaign to boost tourism.
UK hoteliers put focus on helping travellers and colleagues
At the end of a week of horror, sadness and despair, London hoteliers had yet to start counting the business costs - at least in public.
The capital's hoteliers concentrated on offering assistance and comfort to stranded and worried travellers and ensuring colleagues in the USA were safe. However, back of house sales teams were taking cancellations and beginning to revise forecasts for the remainder of 2001.
Crucially, cancellations were coming from the conference and incentive market, meaning the loss of substantial business in the short term and possibly to the end of the year. September is traditionally busy with corporate activity after the summer vacation. Meetings and conferences are usually strong elements for London hotels at this time and many of the four- and five-star hotels rely on the Americans in some way.
The Savoy Group estimates 60% of its business, both corporate and leisure, is American. Geraldine McKenna, group marketing director, says a couple of dinners for last week were cancelled.
"Things were beginning to come back following foot-and mouth. We had a really strong August. Now it is just too early to say - our only indicator is what happened during the Gulf War when occupancies in London dropped 20-30% [Hilton International's profits for the first six months of 1991, for instance, fell from £158m to £98.2m]. There was a recession too. The similarities with today are eerie," she says.
At the Stafford hotel, where 67% of the clientele is American and several guests were personally affected, managing director Terry Holmes confirms he received cancellations not just from America, but from Australia as well. He was, however, reluctant to look ahead just yet.
"Having lived in New York for three years I am, perhaps, a bit emotional about the subject, but I feel that to look to the future of the business is immaterial and wrong right now," he says.
Others agreed and Whitbread and De Vere hotels refused to comment. For the rest, "too early to say" was the common theme, with many adding that George W Bush's next move would determine whether Americans, or others, feel it is safe to travel. Several multi-national companies instituted worldwide travel bans after last Tuesday's events, although some were lifted within 48 hours of the attack. Perhaps more chilling is the story from the sales director of one hotel company in America who was told by a client that no foreign visitors were being admitted into their headquarters for the next three weeks. The client did supply the sensitive defence industry, but it is still an indication of the extremes American companies are going to to achieve security.
John Stauss, regional vice-president and general manager of the Four Seasons London, says a third of his business comes from North America and at this time of year, 65-70% of the hotel's business would be corporate.
At Starwood hotels, area director sales and marketing for UK and Ireland Meenaz Lilani says she has received a couple of conference postponements for her five London properties, but both have rebooked for later this year. Elsewhere, she says, there have been a few cancellations at other properties, namely the Westin Turnbury in Scotland. She estimates 40-50% of the company's business comes from the USA.
"People's immediate reaction is that it does not look right to hold events at the moment, so they are postponing rather than cancelling completely," she says.
Le Méridien has six hotels in London with a total of 95 meeting rooms. The largest of these is Le Méridien Grosvenor House, with 448 bedrooms and 28 meeting rooms. A spokeswoman confirmed cancellations had been received, but would not elaborate on numbers, or on the size of the American market at the London hotels.
One small consolation, if it can be called that, is the fact that some companies are rethinking the location of their next meeting or conference.
"Many of our hotels have also taken requests for conferences that should have been held in New York, and are now being transferred to London," says a Le Méridien spokeswoman. Other groups are receiving similar requests.
Six Continents also confirms it has received cancellations, but a spokeswoman says: "It is hard to know whether this is because there is uncertainty over travel arrangements, or an actual fear of travelling."
Should the next move be a long military operation similar to the Gulf War, hoteliers believe they will see similar falls in tourism, especially from the USA. According to the London Tourist Board, the capital receives 2.7 million visitors from the USA each year, and during the Gulf War in 1991 visitor numbers dropped by one million.
Away from London, in cities and towns that attract a strong American tourist market, there is also cause for concern. September is the key time to solicit business for next summer's season. With few American companies willing to commit at present, large hotels reliant on group bookings are reviewing their forecasts. In Bath the effects of foot-and-mouth are still being seen and one local hotelier says visitor numbers were already down 30% by the end of June, of which 22% was the overseas market.
The effects of a drop in conferences and loss of group bookings may affect chain hotels and larger country house hotels, but independent hoteliers are by no means immune.
"This is the time when block bookings should have come through. Now uncertainty is the name of the game, and larger hotels could drop their rates and start to compete for the independent traveller, which is our market," says Philippa Hughes, co-owner of the 19-bedroom Dukes Hotel in Bath.
Norman Springford, owner of four Apex Hotels in Scotland, agrees he may face pressure from larger hotels. He took the decision to abandon the search for new sites around the UK the day after the New York tragedy.
"There were recessionary trends prior to last Tuesday's events and I do not believe you want to expand at the beginning of the cycle. We were looking for sites in Leeds and London and that has stopped now," he says.
The Devonshire Arms hotel in Bolton Abbey, North Yorkshire, lost two bookings from UK companies with strong American bases, amounting to £20,000.
Managing director Jeremy Rata sums up the feelings of many hoteliers Caterer spoke to: "This has been an annus horribilis from start to finish, but I remember saying that before the American disaster - what can possibly be next?" he asks.
The answer is we just do not know.
Factfile
In 2000, the American lodging industry grossed $24b (£16.4m) in pre-tax profits, 9% up on 1999 and the most profitable year ever.
Tourism generated $561b in domestic sales in the USA in 2000.
50.9 million international travellers visited the USA in 2000. Japan topped overseas arrivals with 5.1 million. The UK was second with 4.7 million.
New York City had 37.4 million visitors in 2000.
Before the attacks, the average American hotel was headed for a 5.6% decline in operating profits in 2001.
Sources: American Hotel & Lodging Association, New York Convention and Visitors Bureau, PKF Consulting, US Department of Commerce
