Let the saints go marching in - and not just the football team. More than a year after Hurricane Katrina, the Crescent City needs one thing right now: travelers who are willing to visit New Orleans to help 'jazz up' the city's recovery.
Pre-Katrina
Following the decline of the petroleum sector in the mid-1980s, New Orleans decided to reposition itself as a convention and leisure destination. The expansion of the Ernest N. Morial Convention Center, the construction of Harrah's Casino, and efforts to clean up the French Quarter played a major role in achieving this objective. These developments helped local hotels adapt to the change in demand generators, as the city became more dependent on its power to attract leisure and convention guests rather than relying on visitors with a vested commercial interest. In short, New Orleans thrives on the charm of its unique cultural heritage, but the majority of visitors could have a similar good time in Orlando or elsewhere. In the late 1990s and the earlier part of this decade, occupancy percentages for the market's major downtown hotels ranged in the low- to mid-60s, and average rate showed moderate growth, with some underlying volatility. Essentially, the convention calendar and events such as the Super Bowl in 2002 and the Final Four in 2003 determined the outcome of year-end results. Notwithstanding, the market experienced price discounting subsequent to the economic slowdown and the events of September 11, facilitated by the use of new Internet distribution channels. Hotel supply increased with the opening of 16 properties affiliated with nationally recognized chains, equating to more than 4,400 rooms between 2000 and 2006.
Supply Increases Since 2000
Hurricane Katrina
New Orleans was in the path of one of the most destructive hurricanes on U.S. soil, which led to the city's greatest disaster in late August 2005. The number of tragic events that followed the breaching of the levees is impossible to recount. Faced with this extraordinary situation, the majority of hotels closed down, while those that stayed open either served as a headquarters facility for authorities (the Sheraton) or provided shelter for some of the people who were not able to leave the city in time (the Hilton). Numerous hotels opened their doors and provided temporary housing, administered by FEMA, for Katrina victims and FEMA workers, who stayed as late as May and June 2006.
Post-Katrina and Reconstruction
Hurricane Katrina hit with strong winds that forced rain into most exposed hotels' undecked roof areas, and shattered windows as seen at the Hyatt hotel. Several hotels suffered from flooding following the storm. Properties that sustained critical damage include the 701-room Fairmont and the 800-room Radisson. The majority of hotels reopened by year-end 2005. Properties that required substantial renovations include the 452-room Ritz-Carlton and the 250-room Monaco. The Ritz-Carlton reopened in December 2006 after a $100-million renovation, and the Monaco will reopen as a Hilton hotel by mid-2007. Hotel supply continues to increase, as hotels complete renovations of damaged units room by room.
Although the hotel industry was relatively quick to recover structurally, the city and most demand generators lag behind. The convention center suffered severe damage, reopening a part of its facilities in February 2006 and the majority by July 2006 following a $65-million renovation. Expansion plans for Phase IV have temporarily been delayed so as to funnel funds to more imminent projects. Like the reopened hotel rooms in the city, the available meeting space is still not able to attract the same demand as prior to Hurricane Katrina.
Despite the loss of 25% of its facilities, the Port of New Orleans managed to increase the amount of cargo handled in 2006. Following the opening of the $35-million Erato Street Cruise Terminal, the port is scheduled to register the most embarkments and debarkments in its history - a much-needed bright spot on the horizon. Although the impressive comeback of the cruise industry helps New Orleans hotels, structural damages to the city pose another challenge. An understaffed police force is struggling to cope with an increase in crime, which may deter visitation. The alleged lack of airline capacity at Louis Armstrong New Orleans International Airport, the surge in housing prices, labor shortages, and the increase in wages all raise the bar for profitability targets.
Hotels Closed For More Than Two Months
Condition of Demand Generators
Outlook
The year 2007 will be a difficult one for New Orleans and its hotels. Last year was not altogether a bad one, as the first half of 2006 was bolstered by demand from FEMA for temporary housing at full rate, as well as post-hurricane workers and insurance adjustors. Thus, 2006 sets the bar too high for 2007 expectations. Meeting planners are still reluctant to commit to the destination, and marketwide demand could be down by as much as 5.0% compared to 2006, or 37.0% to 2004. Although demand is most likely to increase gradually in 2008 with events such as the NBA All-Star Game, the booking pace for the convention center is slow. The National Automobile Dealers Association is the first major group to commit to the city following Katrina, with 15,000 attendees expected at its annual meeting in 2009, setting a milestone in the recovery process. Average rate is likely to register similar decreases in 2007, as the full-rated FEMA demand cannot be replaced. Although managers are reluctant to practice major price discounting after their experiences in 2002 and 2003, average rate is unlikely to register significant growth until occupancy levels return to the mid- to high-60% range.
Conclusion
Unless tourists take a city tour, they will see only a small portion of the damage wrought by hurricane Katrina, mainly in the form of empty shops on Canal Street. Many of the restaurants and attractions that give the Crescent City its charm are open and waiting for customers. New Orleans depends on visitors - but without a new image in people's minds to replace the memory of the flooded city, the recovery will not be able to gain significant momentum.
About the Author
Daniel Voellm is a Senior Associate at HVS International, a leading provider of hotel valuations and consulting services with a presence in all major global markets
Dan has worked for HVS since October 2005 and has conducted more than 50 appraisals and market studies in 20 States and Canada. His main market is Washington DC. Prior to joining HVS, Dan graduated with honors from the Ecole hôtelière de Lausanne (BS), Switzerland, and gained working experience in the hospitality industry in London, England; New Orleans, USA; Stuttgart, Germany; and Lausanne, Switzerland. He speaks four languages, is an avid traveler, and enjoys participating in various sports.
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