PKF Hospitality Research
|October 18, 2005 - F.E.M.A. and scores of other federal, state and
local officials continue to sort through the damage caused by Hurricanes
Katrina and Rita. The toll on human life, while devastating, has fortunately
turned out to be far less than the initial estimates of 10,000+ lives lost.
Positive news has also begun to surface from the New Orleans hotel community.
The New Orleans Metropolitan Convention & Visitor's Bureau ("NOMCVB") recently announced that many hotels in the city would be "back in pristine condition" well before the end of the year. In addition, many properties suffered little to no damage from Katrina and are currently running on self-generated power. These lodgings are currently sold out as a result of demand coming from sources such as local, state and federal government officials, recovery staff, insurance adjustors and, of course, the omnipresent media.
While it is fortunate that many hotels sustained minimal levels of damage, the NOMCVB also cites a recent report indicating that almost 25,000 rooms in the metropolitan area remain out-of-order. The problems created by this loss of inventory are compounded by the damage inflicted on the city's group meeting and convention venues. The Ernest N. Morial Convention Center, the Louisiana Superdome and the New Orleans Arena all sustained damage during Hurricane Katrina. While the Convention Center and the Arena should be fully back on line by the second quarter of 2006, the Superdome will take a longer time to repair.
New Orleans hotels in operational condition will likely be full because of Katrina remediation efforts. However, the reduced hotel inventory and impaired capacity of the city's convention and group meeting venues has, and will continue, to result in a significant reduction of accommodated demand in the Metropolitan area. Specifically, the NOMCVB recently announced that all citywide conventions (those utilizing Convention Center space and three or more hotels) have been cancelled through March 31, 2006. Other meetings (those self-contained in hotels and not utilizing the Convention Center) scheduled post January 1, 2006 have not been cancelled. After the first of the year, the likelihood of cancellation will be dependent on the status of the individual property involved and the preparedness of the city at the time of the meeting.
Thus, lodging revenues to New Orleans, at least in the immediate term, will be less than they otherwise would have been had Katrina stayed at bay. We continue to research the magnitude of this impact; however, certain perspectives based our initial review of history as well as on ongoing discussions with key industry participants have already been developed.
Learning from the Past
One need not reach back far in history to find evidence of the impact
of catastrophic events brought on by the weather. In September 2004, three
hurricanes (Frances, Ivan and Jeanne) struck various communities throughout
the state of Florida, and directly impacted lodging demand in many communities.
To begin to understand this impact, we compared the actual level of rooms
sold and room revenue generated in select Florida markets in the immediately
following quarter (Q404) to business levels for the same period in the
prior year (Q403). The cities considered in this analysis are Tampa/St.
Petersburg, Orlando, Miami and West Palm Beach. The chart below summarizes
the result of this analysis.
Well-established economic patterns in each of these metropolitan areas prior to the arrival of Frances, Ivan and Jeanne in September 2004 logically account for a component of the growth realized in Q404. However, the magnitude of the increase realized during the period far surpasses historical levels, thus suggesting the hurricanes had a significant positive impact on lodging performance. It should be noted that the loss of inventory in these Florida markets due to the hurricanes was minimal relative to what has occurred in New Orleans and other affected Gulf Coast markets.
Other Points to Consider
When analyzing the net impact of Katrina on the lodging industry, we first evaluate the types of travelers likely to be affected by what has occurred. Specifically, we group these customers into the following categories:
Like we saw in New York in months after September 11, some businesses set-up temporary operations in hotels until a more permanent solution is established. Some hotels have begun to field these requests from companies located in the gulf coast area that are now in need of a temporary home.
Convention bureaus and hoteliers across the south and in other areas of the country have been fielding inquires from group meetings and conventions that had planned to come to New Orleans and many have already begun to book significant business. For example, officials in Atlanta recently reported that commitments have been made to relocate two conventions, with an aggregate need in excess of 35,000 room nights, from New Orleans to the Hub of the South during Q404. Announcements for additional demand in Q105 and Q205 are likely forthcoming. Dallas, Houston, Nashville and Memphis are other markets covered in the PKF-HR/TWR universe that will be accommodating varying degrees of this displaced business as well.
The magnitude of the displaced demand is significant. For example, it has been reported that at least 100 large-scale exhibitions that had plans for the Gulf Coast region impact by Katrina will have to make new arrangements for exhibition and meeting space elsewhere. The 2006 Sugar Bowl, which has been played in New Orleans every year since 1935, will be played in Atlanta. Because of the impaired condition of the New Orleans Arena, the NBA's New Orleans Hornets might be moving to the Ford Center in Oklahoma City to play at least part of their 41-game season.
The impact on lodging markets, like we learned from the experience in Florida in 2004, can be substantial. Evidence from the early days in the aftermath of Katrina suggests that, for those hotels that remain, a greater impact will be felt.
R. Mark Woodworth
|Also See:||Double-Digit Profit Growth for U.S. Hotels in 2004 and 2005; Strong Revenue Growth Overcomes Some Expense Concerns / PKF / February 2005|
|Perspectives on the Road to Recovery - U.S. Lodging Industry 2005 / HRG & PKF Consulting / November 2004|