Hotel Online Special Report

Oil Production Cut Could Nick Hospitality Sector; 
Price Hike Would Be Lodging Industry's 
Newest Rising Cost / Bear Stearns
NEW YORK - March 16, 1999--Assuming it holds, the agreement by a group of overseas oil producers to cut production by approximately 2 million barrels per day could bring higher prices at the pump for summer travelers -- adding to a roster of rising costs for consumers in the hospitality sector, according to an analysis by Bear Stearns senior managing director Jason Ader in New York. For the US hotel industry, higher gas prices that could chill leisure travel plans are a source of concern -- as hotel occupancy rates are already declining nationwide, Mr. Ader says. For now, however, oil producers' difficulty in achieving planned cuts may spare US travelers major gas price hikes and keep the US hotel industry on track for another year of record profits. 

"In the past month, prices for crude oil have risen 30 percent from 12-year lows in anticipation of the oil producers' agreement," Mr. Ader notes. "We calculate that for each $1 per-barrel advance in the price of oil, retail gasoline prices will rise approximately two and one-half cents per gallon. Such increases come on top of rising hotel and car rental rates that impact leisure travelers more than any other type," he adds. 

US hotel average daily rates are forecast to increase 3.9 percent in 1999 - more than twice the inflation rate, according to PricewaterhouseCoopers. Major car rental companies, including the industry's most recognized names, pushed through increases in base rental rates in March, Mr. Ader says. And higher fuel costs could force airlines to raise fares further. 

"Budget-conscious travelers may scale back or defer travel plans this summer if gasoline prices join hotel and car rental rates in an upward climb." Mr. Ader notes US economy hotels that cater to budget-minded travelers already have the lowest occupancy rates in the industry at 56.4 percent, according to a PricewaterhouseCoopers study. Such hotels, which had a 57 percent occupancy rate in 1998, can ill-afford an even deeper occupancy decline, Mr. Ader says. 

"But the traditional difficulty Organization of Petroleum Exporting Countries (OPEC) countries have in executing planned cuts may help keep oil prices low and spare travelers from paying more at the pump." "Further, the depth and vast resources of newly merged oil giants may help generate non-OPEC production." Low gasoline prices -- and unhampered travel plans -- would help keep the US hotel industry on the path toward another year of record profits in 1999, Mr. Ader said. 

Bear, Stearns & Co. Inc., a leading worldwide investment banking and securities trading and brokerage firm, is a major subsidiary of The Bear Stearns Companies Inc. (NYSE: BSC). With approximately $18.9 billion in total capital, Bear Stearns serves governments, corporations, institutions and individuals worldwide. The company's business includes corporate finance and mergers and acquisitions, institutional equities and fixed income sales and trading, private client services, derivatives, asset management, correspondent clearing, securities lending and custody services. Headquartered in New York City, the company has approximately 9,500 employees located in domestic offices in Atlanta, Boston, Chicago, Dallas, Los Angeles and San Francisco; and an international presence in Beijing, Buenos Aires, Dublin, Hong Kong, London, Lugano, Sao Paulo, Shanghai, Singapore and Tokyo. 

Bear Stearns & Co. Inc., 
New York 
   Stephanie Stegich, 
(212) 272-6659
Also See: Bear Stearns' Ader Sees Investment Opportunities in the Lodging Industry / March 1998 
US Gaming Stocks Show More Promise Today Than In The Last Two Years, Says Jason Ader / March 1999 

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