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Hotels brace for bare bones cuts

Atlanta Business Chronicle - by J. Scott Trubey Staff writer


Job cuts, dark floors and possible hotel closures are in store for Atlanta's hospitality industry as the economic picture in 2009 turns decidedly worse, insiders say.

Atlanta-based PKF-Hospitality Research predicts a 28.5 percent decline in average hotel profits among metro lodges in 2009, which will likely put pressure on general managers to cut staff and consolidate resources to maintain their debt service payments.

Reduced staffing and guest amenities are all on the table as hotels cope with declining profits, insiders said. Price wars will likely abound, as will creative packages to lure leisure and business travelers.

Room service in some hotels might not be offered 24 hours a day, and in-house restaurants will likely see their hours and menus cut.

"This is not about cutting fat or muscle, this is about cutting bone and still surviving," said Paul Breslin, managing partner of hotel consultants Panther Hospitality LLC and a former general manager of the Sheraton Atlanta Hotel.

"We do think 2009 will be one of the worst years on record because of retracting demand, the resulting decline in revenue and as a consequence of that the magnitude of year-over-year decline in bottom-line profitability," PKF-HR President Mark Woodworth said.

"Industrywide, absolutely, we will begin to see hotel closures. Are we likely to see some here in Atlanta? Difficult to say," Woodworth said. Older and poorly maintained properties without franchise ties are at the most risk. PKF-HR expects occupancy in Atlanta to drop 10.4 percent this year, while revenue per available room (RevPAR), a key measure of hotel health, is projected to decline 15.3 percent.

The expected declines are more or less in line with the rest of the nation, but essentially double projections from last quarter.

Atlanta hotel occupancy for January was below 50 percent and RevPAR fell 23.3 percent, according to data from Smith Travel Research Inc. Woodworth said the first and second quarters will likely be the worst of the year, but he cautioned Atlanta has not reached the bottom and the industry will be slow to recover, and likely will not see an upswing until late 2010. Mounting job losses in Atlanta and nationwide are exacerbating the problem.

Employment levels and personal spending correlate with hotel demand, Woodworth said, and Moody's Economy is predicting the city will suffer seven straight quarters of job losses, and will not reclaim the nearly 120,000 jobs lost since early 2008 until the third quarter of 2011.

Hospitality is an $11.4 billion economic driver for the city. Atlanta's hotels - and by default its restaurants and attractions - are struggling as the economy has forced companies to slash travel, and tourists to stay at home. Host Hotels & Resorts Inc., which owns

The The Ritz-Carlton Buckhead and Marriott Atlanta Marquis, reported its seven Atlanta properties suffered a 7.7 percent drop in RevPAR and a 3 percent cut in average room rates in the fourth quarter, according to a March 3 Securities and Exchange Commission filing. Al Calhoun, managing director of hotel brokerage Jones Lang LaSalle Hotels, called the projections "devastating."

Luxury hotels will suffer the greatest fallout from the "AIG effect," Calhoun said, as companies downscale accommodations and cut travel to avoid appearing aloof to the economic climate.

Layoffs, putting off capital improvements and other "creative" measures will likely take place, he said. But managers will be hard-pressed to meet debt service on their properties.

In the current lending environment, however, banks are loath to take properties back and suffer write-downs from lost value, and are more willing to work with borrowers to keep their loans current.