For the lodging industry, this slowdown has immediate implications, and requires immediate action, according to Chase Burritt, national director of Ernst & Young's Hospitality Services Group.

"The best opportunities to improve the industry's cash flow position remain an intense focus on internal operations," said Mr. Burritt. "Most pressing, high energy prices have squarely impacted hotels, with some forced to pass along supplemental energy surcharges directly to guests. And the crucial need to reassess energy usage and policies at property and corporate levels support the broader need for comprehensive asset management strategies that protect asset value through formalized planning and supervision."

As corporations face economic uncertainty, budgets tighten and spending becomes more frugal. Business travelers are no longer booking rooms at a moment's notice with no regard for price. According to a study conducted by the National Business Travel Association, 66 percent of corporations are contemplating reducing their travel allowances for lodging in the future, and 43 percent reported that they have already taken measures to reduce travel budgets since the beginning of the year.
    
According to another study by BTLogic and Equation Research, the average company is cutting its travel budget by 14 to 19 percent. In light of tighter budgets, corporations are scaling back on the amount of traveling, resulting in less group meetings and room nights being generated for hotels in cities such as Manhattan which rely on the corporate segment for a significant component
of room demand.
    
According to the latest projections from Smith Travel Research, preliminary figures suggest that mid-year 2001 U.S. industry occupancy will be down 4 to 5 percent versus mid-year 2000. Revenue per available room (RevPar) is also down 2 to 3 percent versus the prior year. Preliminary figures indicate fairly significant performance variability among the chain scale segments.
    
Hotel operator giants such as Marriott International, Inc., Starwood Hotels & Resorts Worldwide Inc. and Hilton Hotels Corp. have all cautioned of slowing national lodging growth in 2001 due to the economic downturn and particularly, a drop-off in business travel.

These companies attribute the decline in the New York market to decreases in the business transient segment, a key component of New York's lodging demand, and softness in the technology and financial services sectors.
    
New York hotels, along with hotels in other urban cities such as San Francisco, face pressure to lower room rates, which have soared over the past few years. These operators are focused on achieving a balance between room rates and occupancies. In addition to reviewing and revamping yield management policies, hotels are now implementing various cost controlling measures in an attempt to offset losses in revenues, and increasing sales efforts for non-room revenue producing departments such as banquets and
spas. Cost control measures have included an intense focus on energy spending, with a growing trend toward minimal energy surcharges of between $1.50 and $4 per room night now appearing in 16 states.
    
In periods of economic downturn, many lodging companies are looking for help with improving operational, financial and capital market strategies. Companies have concerns over issues such as operational enhancement, cost containment, divestiture of assets, and tax minimization. The following overview is provided by Ernst & Young's Hospitality Services Group as opportunities to enhance enterprise value:

Operational Enhancement

An owner's business objectives can often be met by assessing the current state of property-level operations, the alignment between property-level critical processes, systems, and an owner's overall strategy. The value added by effectively assessing, diagnosing and implementing a solution is decreased costs, increased revenues, increased operating efficiencies, improved
productivity and increased asset value.

Energy Management
    
Lodging companies have benefited by developing and implementing energy management programs to help reduce commodity costs, lower energy demand and consumption, improve efficiencies, reduce operation and maintenance costs, and provide for the monitoring and verification of energy savings. These programs can be implemented at the outset of a new development or during the
ongoing operation of an existing hotel.

Tax Minimization
    
Fixed Asset Reviews: Companies leave significant dollars on the table every year, simply because of incorrect depreciation/recovery treatment of their capital expenditures. The cost of personal property is often buried in the overall cost and, if not properly separated out, results in the mistreatment of these costs for depreciation purposes. Taxpayers can accelerate the rate at which they can recover tax depreciation, and obtain this benefit during the current tax year.

Like-Kind Exchange: Companies may defer the typically sizable taxable gain it would realize on the sale of a parcel of real property by either acquiring or taking an acquisition position in one or more replacement properties. There are a series of creative structures that enable companies to evaluate, and implement like-kind exchange opportunities.

State and Local Tax: Many companies have restructured their organizations to effectively reduce state and local income taxes. However, business or economic factors may have reduced the overall benefits of strategies originally in place. Factors such as restructuring operations, changes in entity profitability, and asset relocation or disposition, may affect State and Local taxes.

Strategies for Capturing Offsets and Unrealized Tax Refunds/Credits: 
Companies do not sufficiently analyze their prior capital investments and human resource training and hiring activity, state and business practices in order to identify and secure and increase state and local income/franchise tax credits that may be available in the states in which the business operates.
    
"While recent economic news continues to soften lodging industry growth, with RevPAR anticipated to increase only slightly above the Consumer Price Index in 2001, owners need to focus more and more on internal operations to maintain profits," concluded Mr. Burritt. "With a sharp eye on the bottom line, however, lodging managers can continue to squeeze additional value from their operations, continuing a decade-long focus on operational reengineering, financial restructuring and a disciplined adoption of appropriate new technologies."

With over 50 dedicated advisory professionals, Ernst & Young's Hospitality Services Group is the largest hospitality practice among the Big Five accounting firms, offering a full scope of integrated, multi-disciplinary services - including help with acquisition, development and disposition - for every major segment from lodging to travel, tourism to attractions.

Ernst & Young's Hospitality Services Group maintains a dominant market position in such major markets as California, Phoenix, Dallas, Atlanta, Philadelphia, Chicago, Boston, New York, and Miami. It also has extensive international experience in Latin America and the Caribbean, Europe, the Far East, and Pacific Rim.
    
Ernst & Young, a global leader in professional services, helps clients to quickly and confidently make financial decisions designed to enhance value. Its 78,000 people in more than 130 countries have the industry and financial experience to provide fresh perspectives on operating successfully in the new economy.