FL Hotels Facing Tough 2002 As All Cities Suffer Lower Occupancies and Dropping Rates

Ernst & Young Report Predicts Daytona Beach, Tampa and Ft. Lauderdale Will Out-Pace Miami & the Beaches, Orlando, The Keys and the Rest of Florida

The Florida Hospitality Services Industry is facing its most difficult year in recent memory. The combination of the cooling economy, World Trade Center attack, ensuing war on terrorism, mild weather in northeast feeder markets and prolonged reductions in international and leisure travel, have combined to make for what may be the most challenging operating and business environment in the last decade. In a report released today, Ernst & Young's Hospitality Services Group describes the challenges this year will bring, analyzes the major Florida lodging markets and offers advice on how to ride out the storm. The report, a follow-up to Ernst & Young's National Lodging Forecast, provides a detailed analysis of the Florida lodging industry. The full report titled, 2002 Florida Lodging Forecast is available at: http://www.gallen.com/eykl/HSGReports.htm.
Not surprisingly, the report found that some markets are fairing better than others. Daytona Beach, a top tourist destination, fresh off the Daytona 500 NASCAR race of February 17, should rebound the fastest of any Florida city. Daytona hotels, already well on their way to recovering, should be back into good health in the next 3 to 4 months. Tampa, Ft. Lauderdale and Jacksonville are next in line for recovery where steady corporate demand has mitigated the drastic impact felt by destinations driven primarily by leisure demand. Miami and Orlando, facing big supply increases and more dependent on international and leisure travel, have had to cut rates significantly in the short term, which has created some excellent values for consumers. As the economy continues to pickup both Orlando and Miami will improve but it's likely that most, if not all, of the year will be necessary for them to regain rates and occupancy.
Report author, Mark Lunt — E&Y's Florida and Caribbean Hospitality Practice Leader, says some Florida hotels may change hands before this year is over. With plunging occupancy rates and reductions in room rates, hotel profit margins are getting thinner and thinner. The profit picture will not be getting much better for several months in some of the markets and it is anticipated that some hotels may default on their loans. Weaker operators may get bought out as buyers looking to enter the Florida market grab an opportunity to buy on a discount, Lunt predicts.
Other effects from the struggling hospitality industry include lower tax receipts to state and local governments. The Florida tourism industry generates approximately $3 billion in taxes. These taxes play a large role in helping local governments pay for a variety of city services and re-development projects. The reduction in bed tax receipts will no doubt limit local governments' ability to initiate new projects in 2002.
There are some steps hotel operators can take to help get through the next few months says Lunt. Smart operators are making moves now that will help them not only get through the rough months ahead, but also position themselves for the markets eventual recovery. Some of the efficiencies include: financial restructuring, property re-valuation, outsourcing of services, improved information technology efficiencies and the rationalization of human resources.
The long-term health of the Florida hospitality market is good, where 843,000 Floridians are employed by tourism. Florida welcomed 71.5 million guests in 2000, with New York, Atlanta and Chicago being the top three visitor markets. Internationally Canada, the United Kingdom and Venezuela were the top three visiting nations. The average stay for domestic visitors was 5.4 nights and 12.4 for international visitors.
Florida remains one of the top tourist destinations in the world. The short-term slump we're in poses significant challenges for the next several months, but we believe the lodging markets will recover in late 2002 and return to normal sometime in 2003. Florida is also one of the most visited states in the nation, is the theme park capital of the world, has fantastic weather and always delivers as a popular convention destination, and that's not going to change, said Lunt.
The complete report which includes Ernst & Young's original research and market analysis on numbers compiled by Smith Travel Research, can be downloaded at: www.gallen.com/eylodging.com.