While lodging fundamentals are healthy, the hotel industry currently finds itself defending its condition to the public debt and equity markets. While those in the lodging industry -   on the strength of these recent and expected profits -  are eager to act on development opportunities, Wall Street has responded to recent declines in lodging stocks and global economic uncertainty by constricting financing to the industry.

"1998 was the year that capital dried up for the lodging industry" says Chase Burritt, National Director  of E&Y Kenneth Leventhal's Hospitality Services Group. Burritt added that public capital flow to lodging companies is expected to have decreased by 70 percent from approximately $7 billion in 1997 to $2 billion in 1998.

"With little capital for development and moderating RevPAR growth, focusing on same store sales will be critical to maintaining profit growth for hotel companies in the year ahead," according to Burritt. "And with lodging stock prices still largely in the doldrums, we expect 1999 to become a year of privatization deals and stock - for - stock mergers, further changing the face of an industry which has experienced unprecedented consolidation the past 24 months ," he added.

On the bright side, the current capital squeeze will strengthen occupancies in the future by thinning out the development pipeline, said Burritt. Combined with increasingly efficient hotel operations that have lowered the industry's overall break - even point drastically, the industry should be better equipped to weather a more conspicuous downturn in the economy should one occur.

The E&YKL report to be released next month as the National Lodging Forecast, shows demand for hotel rooms has steadily climbed in the past several years, the combination of significant new supply and hoteliers' focus on raising room rates have reduced occupancy levels. In 1999, the industry is expected to achieve an estimated overall occupancy rate of 63 percent at an estimated average rate of $82, representing a slight decrease in occupancy and moderate increase in average rate over 1998.

The lodging industry is expected to generate record profits of approximately $20 billion in 1998, with the industry posting estimated average occupancy rates of 64 percent at an estimated average daily rate of $79. This represents an estimated half point decrease in occupancy and five percent increase in average rate from 1997 performance.

Though occupancies are decreasing, gains in average rate have helped to maintain positive, albeit slowing, revenue per available (RevPAR) growth. Industry RevPAR is expected to increase an estimated four percent this year and an estimated three percent in 1999, marginally above 1999 Consumer Price Index (CPI) expectations.