In a report released today, Ernst & Young's Hospitality Services Group describes the challenges this year will bring, analyzes the major U.S. markets and offers advice on how to ride out the storm. 

"Hotel operators are dealing with some difficult issues that have all hit at once and made hospitality operations especially difficult right now," says report author and Ernst & Young's Hospitality Services Group National Director Chase Burritt. "We're facing some slow months ahead in the hospitality industry and the smart players are making moves now that will help ensure they can ride it out and be properly positioned when recovery begins," he added.

Not surprisingly, the report found that some markets are fairing better than others. San Diego is poised to recover the fastest, within three months. Markets like Baltimore, Chicago, Detroit and San Antonio are set to recover in five months. Atlanta, Boston, Dallas, Denver, Houston, Los Angeles, Miami, Orlando, Philadelphia, Phoenix, Puerto Rico, Seattle and Washington D.C. should recover in six to twelve months. However, Hawaii, Manhattan and San Francisco may take up to fourteen months before they recover.

Another of the industry-wide effects is the slowing of new hotel construction. While seemingly a negative, Burritt points out that the slow construction growth may actually be a positive. "Today, there are fewer rooms under construction than at any other time during the past three years. That slowing in supply should actually stabilize occupancy rates and help the recovery process begin to take hold in 2002," said Burritt.

Hotel profit margins dropped in 2001 and that trend will continue for 2002. As the margins get thinner hotel stocks will continue to drop and loan defaults become a real possibility for some of the upper-end hotels, where expensive services are the norm and operators are more reluctant to cut prices. However, for investors this dip in the market may present good "buy" opportunities to snap up temporarily undervalued stocks at a discount.

Instead of only predicting doom and gloom for the industry, Burritt's group has been helping hotel companies implement some changes that impact the bottom line immediately and offset many of the external problems occurring in the marketplace.
    
Burritt sees a recovery for the industry beginning in 2003 and the market returning to normal in 2004. His report offers strategic advice so hotel operators can analyze their operations and find cost reductions that have a minimal impact on staff and can be
realized in the short term. The report provides thoughts on cost containment and operational efficiencies including changes in staffing schedules, energy strategies, management company selection, property valuations and asset management.
    
The complete report -- "2002 National Lodging Forecast," which includes Ernst & Young's market analysis on original research and numbers compiled by Smith Travel Research, can be downloaded.

The Hospitality Services Group of Ernst & Young is considered one of the largest and most effective advisory practices in the world. The Hospitality team is focused on delivering value-added solutions that are focused and quick to implement. Industry authorities for over 25 years, the E&Y Hospitality team provides research and analysis of worldwide industry movements and opportunities.