The View from the Top:
Hospitality Industry CEOs Watching Economy

by Joseph J. Serwach
August, 2001

When economic conditions nosedive, businesses typically cut back on travel budgets hurting the hospitality industry in the process.

But as of early 2001, some of the industry’s top CEOs were saying they had not yet seen the kind of cutbacks they’d seen during past downturns. They note that a slowing economy keeps developers from over-building.

Gathering at the January 2001 UCLA Extension Hotel Industry Investment in Los Angeles, the CEOs of Bass Hotels & Resorts, Wyndham International, MeriStar Hotels & Resorts and Choice Hotels International argued that downturns can also create opportunities for smart companies.

Roger Cline, director of hospitality consulting services for Andersen, moderated the discussion.

“This is front and center on the minds of the investment community,’’ says Thomas Oliver, chairman and CEO of Bass Hotels & Resorts, which includes chains like Holiday Inn, Inter-Continental and Crowne Plaza. “The financial markets have put the brakes on supply growth.’’

He notes his company’s Holiday Inn Express chain is growing rapidly in Europe and says the company sees a number of opportunities.

“Quite often you go into a market with one, two, three or four properties with low fees for franchisees ... Our U.S. reservation system delivers a lot of business to markets like London or Paris but not as much to outlying areas” where a brand has to be built on its own to a mostly new market less familiar with a name, he says. 

Not like the 1998 slowdown

During Asia’s economic crisis in 1998, the hospitality industry felt the slowdown very quickly, says Paul Whetsell, chairman and CEO of MeriStar Hotels & Resorts. But as of early 2001, he notes, “We’ve seen none of that this time around … We have not heard it from customers yet.’’

And in the early 1990s, top executives say the industry saw still harsher challenges when a recession as well as fall-out from past overbuilding sent occupancy levels downward. 

Lodging stocks beat S&P during first quarter 2001

As of late March, Wall Street seemed to agree with the outlook of the executives who had gathered in January.

The Dow Jones U.S. Lodging Index was down by less than 5 percent during the first quarter of 2001, while the broader Standard & Poor’s 500 index was down by about 13 percent.

Whenever the economy slows, the amount of new supply going into the market also is cut back which can prevent overbuilding and create opportunities for existing operations, Whetsell notes. He adds, “If demand changes we will react and we think we can very quickly. Supply has slowed down dramatically and if this is short that means we could have a terrific second half and that would take us into 2002.’’

Fred Kleisner, chairman, president and CEO of Wyndham International, notes, “economic forecasters have a record of tracking 10 of the last four recessions.’’ In the early 1990s, he recalls, the economy dropped hard along with demand for room rates. 

He sees more of a “real-time connection’’ between economy and the hospitality industry. When a slowdown comes, he says the market shifts from “being a seller’s market to a market share game.’’

“We may sail through this just fine,’’ says Charles Ledsinger, president and CEO of Choice Hotels International.

“We’re not changing anything we’re doing. For us, it’s press ahead.’’

Whetsell says bigger owners tend to look for more growth during good economic times, adding he is “more interested in [increasing] market share.”

Kleisner notes that full-service upscale hotels can become more flexible during a slowdown “and that’s when it changes from a seller’s market to a market share game.”

“This industry is full of followers where someone builds [a new type of lodging property] that works and we all tend to follow and overbuild it,” Whetsell says.
 

Joseph J. Serwach is site editor for Real Estate and Hospitality, Business Consulting and eBusiness on Andersen.com. Contact him at editor.serwach@us.andersen.com.

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