Hotel Industry Sees Resurgence, Expects to Recoup Lost Revenue during 2004

By Leon Stafford, The Atlanta Journal-Constitution
Knight Ridder/Tribune Business News

May 20–After three years struggling to fill rooms, the national hotel industry is expected to recover lost business and recoup lost revenue in 2004.

But an Atlanta hospitality research firm warns in a new report that pressures to meet wage, insurance and utility increases could siphon profits.

“Managers have done a good job of controlling those expenses that they can control,” said Mark Woodworth, executive managing director of the Hospitality Research Group and one of the authors of its 68th Annual Trends report. “But there are some areas that are experiencing significant increases that are out of their control, like insurance and energy.”

HRG surveyed about 4,300 hotels, including about 230 properties in Atlanta, Woodworth said.

The survey coincides with a report, released Wednesday by the Economic Forecasting Center at Georgia State University, that forecasts strong hiring in the leisure and hospitality industry during 2004. The sector, which in 2003 employed 200,700 in metro Atlanta, is expected to add 7,700 local jobs this year.

Nationally, rising expenses combined with a drop in revenue forced hotel profits down 12.4 percent in 2003, the report said. It was the third consecutive year that profits fell in the industry and the first three-year profit downturn since the early 1960s.

Atlanta hotels were particularly hard hit in 2003 because many of them rely heavily on convention, trade show and meeting business, which all but dried up after the 2001 recession. Revenue for convention hotels in Atlanta dropped 2.6 percent, and profits fell 16.2 percent.

Atlanta hotels, too, are expected to rebound much more slowly than competitors in other cities, Woodworth said.

“The outlook for conventions is mixed,” said Rajeev Dhawan, director of the Economic Forecasting Center. “We’ve got a lot more competition — and not just in the Southeast but all across the nation.”

The turnaround in hotel traffic began late in 2003 as the economy started showing signs of steam. Business during the first quarter of 2004 grew significantly over the same period a year ago, and profits are expected to surge for the remainder of the year.

However, the increases probably will only take hotels back to where they were in 2002, Woodworth said. And Atlanta will struggle to do that well.

“They have a lot of ground to make up,” said Robert Mandelbaum, HRG’s director of research information services.

Making up that ground will take more than filling a few more rooms. Hotel operators that want to draw more guests are having to update their facilities and market themselves again.

“Those managers that are reluctant to increase their budgets in marketing are going to find themselves left behind in the recovery,” Woodworth said.

The challenge, however, will be to do this without going overboard, spending more than they can afford, he said.

“Unfortunately,” the researchers said in the report, “hotel managers have historically not demonstrated an ability to control costs during periods of recovery.”

Michael E. Kanell contributed to this article.

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